Download or read book Price Discovery and Volatility Spillovers in Index Futures Markets written by Maosen Zhong and published by . This book was released on 2004 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the hypotheses that the recently established Mexican stock index futures market effectively serves the price discovery function, and that the introduction of futures trading has provoked volatility in the underlying spot market. We test both hypotheses simultaneously with daily data from Mexico in the context of a modified EGARCH model that also incorporates possible cointegration between the futures and spot markets. The evidence supports both hypotheses, suggesting that the futures market in Mexico is a useful price discovery vehicle, although futures trading has also been a source of instability for the spot market. Several managerial implications are derived and discussed.