High-frequency lead-lag relationships in the Chinese stock index futures market: tick-by-tick dynamics of calendar spreads
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| Format: | Preprint |
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2025
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| _version_ | 1866929660927934464 |
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| author | Li, Guanlin Chen, Xiyan Liu, Yingzheng |
| author_facet | Li, Guanlin Chen, Xiyan Liu, Yingzheng |
| contents | 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. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2501_03171 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | High-frequency lead-lag relationships in the Chinese stock index futures market: tick-by-tick dynamics of calendar spreads Li, Guanlin Chen, Xiyan Liu, Yingzheng Computational Finance Statistical Finance Applications 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. |
| title | High-frequency lead-lag relationships in the Chinese stock index futures market: tick-by-tick dynamics of calendar spreads |
| topic | Computational Finance Statistical Finance Applications |
| url | https://arxiv.org/abs/2501.03171 |