A Multi-market Comparison of the Intraday Lead-Lag Relations Among Stock Index-Based Spot, Futures and Options.

Using 1-min data, we explore the dynamic variation of the intraday lead-lag relations between stock indices and their derivatives through a comprehensive study with broader coverage of research objectives and methodologies. This paper provides explicit evidence that the futures and options exhibit price leadership over the spot market, and the options is ahead of the futures on most trading days in all three markets. This paper also reports a new finding that the relation between the derivative and its underlying index reverses when the index return has a significantly larger mean value, and the reversal phenomenon is also observed in the relations between the futures and the options, which enriches the empirical results of intraday lead-lag relations. Moreover, these conclusions still hold under the impact of extreme events, e.g., the outbreak of the Covid-19. Finally, we construct a pair trading strategy based on the intraday lead-lag relationships, which can get better performance than the corresponding spot index. Our findings can potentially help regulators understand the price discovery process between the index and its derivatives, and also be of great value for timely adjustment of investors intraday trading strategies.

Dynamic lead–lag relationship between Chinese carbon emission trading and stock markets under exogenous shocks

Using the non-parametric thermal optimal path method, we investigate the dynamic lead–lag relationship between carbon emission trading and stock markets in China, and further consider the impact of different types of exogenous shocks on the lead–lag relationship. The empirical results show that the stock market leads the carbon market on most trading days, and the relationship reverses when the mean values of carbon market return are significantly smaller than zero. In addition, the lead–lag relationships when the carbon market leads the high energy-consuming stock market sectors are more obvious. We also find that there exist significant heterogeneous effects of different types of exogenous shocks on the lead–lag relationship between the two markets, including government policy, the Sino-US trade war and the Covid-19 outbreak. These findings have the potential to help regulators understand the interrelationship between components of the financial market, and be of great value for investors to optimize portfolio allocation by incorporating carbon assets into the portfolio.

Dynamic Risk Spillover Effect between the Carbon and Stock Markets under the Shocks from Exogenous Events

Based on the DY spillover index model, we explore the static and dynamic risk spillover relationships between the Chinese carbon and stock markets from the perspective of the entire market and different industry levels. Furthermore, we examine the impact of diverse types of exogenous events on the risk spillover effects. The empirical results of the sectoral stock market show that the carbon market is the primary risk taker, and the risk spillover to the carbon market is mainly from high-carbon-emitting industries, such as the oil and electricity industries. However, the risk spillover relationship will be reversed under the shocks from exogenous events. The shocks from different types of exogenous events enhance the risk spillover from the carbon market to the stock market, specifically to the oil sector. The Sino-U.S. trade war and the COVID-19 outbreak are more impactful than government policies. These findings help investors to understand the risk conduct patterns among different financial sub-markets, and have implications for regulators to strengthen market risk management.