Prcie Discovery In Spot And Futures Markets

This paper studies the process of price discovery in spot and futures markets based ona pre-specified vector error correction model and a time-varying threshold error correctionmodel，our results indicate that the futures market play a leading role in the process ofprice discovery in spot and futures markets and the index market contributes a less partthan the index funds market to the process. Furthermore, We also find that the volatility，not the liquidity，is the driving factor for relative price leadership between the spot andfutures markets. At last，the thansaction-cost beening considered，when an arbitrageopportunity does not hold，the futures market plays an absolutely leading role in theprocess of price discovery， on the contrary case， the futures market and the indexmarket both plays a significant contribution to the process of price discovery.