2025/01/06 by Guanlin Li, Li, Guanlin, Xiyan Chen +3 · 1 voice
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Financial Markets and Investment Strategies #Market Dynamics and Volatility #q-fin.CP #q-fin.ST #stat.AP
paper · pdf · doi:10.48550/arxiv.2501.03171
openalex publication_date 2025/01/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Lead-lag relationships, integral to market dynamics, offer valuable insights into the trading behavior of high-frequency traders (HFTs) and the flow of information at a granular level. This paper investigates the lead-lag relationships between stock index futures contracts of different maturities in the Chinese financial futures market (CFFEX). Using high-frequency (tick-by-tick) data, we analyze how price movements in near-month futures contracts influence those in longer-dated contracts, such as next-month, quarterly, and semi-annual contracts. Our findings reveal a consistent pattern of price discovery, with the near-month contract leading the others by one tick, driven primarily by liquidity. Additionally, we identify a negative feedback effect of the "lead-lag spread" on the leading asset, which can predict returns of leading asset. Backtesting results demonstrate the profitability of trading based on the lead-lag spread signal, even after accounting for transaction costs. Altogether, our analysis offers valuable insights to understand and capitalize on the evolving dynamics of futures markets.