Dynamics in futures and spot markets: A panel study of advanced and emerging economies of Asia

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The study explores the underpinning interlinkages in the spot and futures markets across nine Asian advanced and emerging economies, and examines whether development status has any impact on the nature and speed of adjustments in the information transmission. By applying Panel VECM to the data set from the very day futures trading was initiated on the respective exchange till February 2020, the results highlight that in the long run, over the entire period, the futures market adjusts 69.7% more than the spot market and there is a bidirectional causality in the short run. Even in the sub-periods, the same phenomena were observed, and in the short run, there was a unidirectional causality from futures to spot during the crisis period. An identical trend was observed for country groups in three sub-periods. However, in the short run, during the crisis period, a unidirectional causality from futures to spot was found in advanced economies, while the opposite pattern was found in emerging economies. The paper establishes that the spot market dominates the information dissemination process. The results also demonstrate that traders prefer liquidity over leverage as their trading venue, the existence of potential index arbitrage opportunities, and validate that development status has no impact on the information transmission pattern amongst the markets, except during turbulent times. The study offers insights to market participants to develop their specific trading strategies in these markets at various economic stages, thereby increasing their expected returns.

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    • Table 1. Panel unit root test
    • Table 2. Pedroni cointegration test
    • Table 3. Panel VECM results
    • Table 4. VECM results for sub-periods
    • Table 5. VECM results for country groups in pre-GFC, GFC and post-GFC periods
    • Table A1. List of indices considered for panel analysis
    • Table A2. Summary statistics of return rates of futures and spot prices
    • Conceptualization
      Sangeeta Wats, Chandrima Sikdar
    • Data curation
      Sangeeta Wats, Chandrima Sikdar
    • Formal Analysis
      Sangeeta Wats, Chandrima Sikdar
    • Investigation
      Sangeeta Wats, Chandrima Sikdar
    • Methodology
      Sangeeta Wats, Chandrima Sikdar
    • Project administration
      Sangeeta Wats, Chandrima Sikdar
    • Resources
      Sangeeta Wats, Chandrima Sikdar
    • Software
      Sangeeta Wats, Chandrima Sikdar
    • Supervision
      Sangeeta Wats, Chandrima Sikdar
    • Validation
      Sangeeta Wats, Chandrima Sikdar
    • Visualization
      Sangeeta Wats, Chandrima Sikdar
    • Writing – original draft
      Sangeeta Wats, Chandrima Sikdar
    • Writing – review & editing
      Sangeeta Wats, Chandrima Sikdar