Publication Type
Journal Article
Version
publishedVersion
Publication Date
5-2016
Abstract
We study the effect of changes involving component stocks of the Nikkei 225 stock index on the behavior of the Nikkei 225 index futures. Specifically, we examine the effects of component changes of the Nikkei 225 on the volume, returns, volatility, and bid-ask spreads (BAS) on its corresponding futures contract traded on the Singapore Exchange (SGX). We find that trading volume increases and the bid-ask spread decreases but there is no significant change in the returns of the SGX Nikkei 225 index futures after a component change takes place. This does not support the Price Pressure Hypothesis, which states that the increase in price of a stock after it is newly added into a stock index is only temporary and gradually reverts (Vespro, 2006; Harris and Gurel, 1986; Lynch and Mendenhall, 1997). We find weak evidence that volatility decreases, contrary to the findings of Vespro (2006) and Lynch and Mendenhall (1997).
Keywords
Nikkei 225 Futures, Component Changes, Singapore Exchange, stock markets
Discipline
Asian Studies | Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
NIDA Business Journal
Volume
18
First Page
111
Last Page
141
ISSN
1905-6826
Publisher
NIDA Business School
Citation
CHAROENWONG, Charlie; DING, David K.; and SIRAPRAPASIRI, Vasan.
The Microstructure Behavior of SGX Nikkei 225 Index Futures Resulting from Component Changes of the Underlying Cash Market Index. (2016). NIDA Business Journal. 18, 111-141.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5009
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
http://mba.nida.ac.th/en/books/issue18
Included in
Asian Studies Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons