Price discovery of German index derivatives during financial turmoil

Frommherz, Anja. (2017) Price discovery of German index derivatives during financial turmoil. Review of Managerial Science. pp. 1-33.

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According to basic finance theory, a derivative`s price is derived from the value of its underlying asset and therefore incorporates the same informational content as the fundamental. Empirically however, this prediction can often be refuted due to liquidity and trading cost aspects. Using a unique high-frequency data set, this paper studies the price formation of the German equity index market, the DAX, in a multivariate framework and breaks it down into its four main market segments. For the period under consideration from July 2007 to December 2009, which is characterized by severe financial turmoil, I find that the futures market leads in terms of price discovery, closely followed by the exchange-traded fund. Further, the time series behavior of the information share measures clearly suggests a sensitivity towards the market environment. I show that the informational contribution to price discovery is affected by the financial crisis and that short-selling constraints weaken the price discovery role of certain markets.
Faculties and Departments:06 Faculty of Business and Economics
UniBasel Contributors:Frommherz, Anja
Item Type:Article, refereed
Article Subtype:Research Article
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:14 Jun 2018 09:46
Deposited On:14 Jun 2018 09:46

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