Universität zu Köln

Korn, Olaf, Krischak, Paolo and Theissen, Erik (2019). Illiquidity transmission from spot to futures markets. J. Futures Mark., 39 (10). S. 1228 - 1250. HOBOKEN: WILEY. ISSN 1096-9934

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Abstract

We develop a model of illiquidity transmission from spot to futures markets that formalizes the derivative hedge theory of Cho and Engle (1999). The model shows that spot market illiquidity does not translate one to one to the futures market but, rather, interacts with price risk, liquidity risk, and the risk aversion of the market maker. The model's predictions are tested empirically with data from the stock market and markets for single-stock futures and index futures. The results support our model and show that the derivative hedge theory provides an explanation for the liquidity link between spot and futures markets.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Korn, Olaf UNSPECIFIED UNSPECIFIED UNSPECIFIED Krischak, Paolo UNSPECIFIED UNSPECIFIED UNSPECIFIED Theissen, Erik UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-134836
DOI:	10.1002/fut.22043
Journal or Publication Title:	J. Futures Mark.
Volume:	39
Number:	10
Page Range:	S. 1228 - 1250
Date:	2019
Publisher:	WILEY
Place of Publication:	HOBOKEN
ISSN:	1096-9934
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language SINGLE-STOCK FUTURES; INDEX FUTURES; TRADING ACTIVITY; PRICE DISCOVERY; EXECUTION COSTS; RELATIVE RATES; ORDER FLOW; LIQUIDITY; OPTIONS; INFORMATION Multiple languages Business, Finance Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/13483