SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
vtv
Topic Author
Posts: 4
Joined: March 22nd, 2011, 12:44 pm

Futures vs stock, which one is leading the other?

December 16th, 2011, 3:22 pm

My experiment goal is to find out between futures and stock, which one is leading the other.Let say I have two different feeds from market, one is for stock and the other is for future. In each message, there is a universal timestamp.There is an issue regarding the in-sync of the arrival of the feeds so it is giving not much information to conclude when comparing the two feeds and it is critically affecting the decision to find out the answer. How you guys do it usually?Thank you very much.
 
User avatar
winstontj
Posts: 129
Joined: April 7th, 2010, 1:00 pm

Futures vs stock, which one is leading the other?

December 17th, 2011, 1:46 pm

QuoteOriginally posted by: outrunWhen I was a floortrader, the index future trading was triggering index basket trading by us, so futures were leading. The reason was that (stock) basket trading was very expensive from a bid-ask point of view so people trading the index would rather trade the futures. The future was much tighter quoted than the stock because there was supply and demand randomly netting out positions, and so didn't also need to do the expensive basket hedge.I don't know is this argument holds for single stock futures.I would say that this is still generally true however things have changed a bit. If you are going to trade the index, futures will always be more cost efficient however today a large constituent (index member) or even an index sub-sector can lead or push the basket with news or even at times a market participant taking on a position. Spreads and margins have gotten tighter so while it is still expensive to trade indexes via equities the equities can, at times, lead. Things are so tight that it goes back and forth. Correlation is very close across the broader markets so things will shake around a bit.What happened to the old "cash is king"?
 
User avatar
vtv
Topic Author
Posts: 4
Joined: March 22nd, 2011, 12:44 pm

Futures vs stock, which one is leading the other?

December 19th, 2011, 5:01 pm

QuoteOriginally posted by: winstontjQuoteOriginally posted by: outrunWhen I was a floortrader, the index future trading was triggering index basket trading by us, so futures were leading. The reason was that (stock) basket trading was very expensive from a bid-ask point of view so people trading the index would rather trade the futures. The future was much tighter quoted than the stock because there was supply and demand randomly netting out positions, and so didn't also need to do the expensive basket hedge.I don't know is this argument holds for single stock futures.I would say that this is still generally true however things have changed a bit. If you are going to trade the index, futures will always be more cost efficient however today a large constituent (index member) or even an index sub-sector can lead or push the basket with news or even at times a market participant taking on a position. Spreads and margins have gotten tighter so while it is still expensive to trade indexes via equities the equities can, at times, lead. Things are so tight that it goes back and forth. Correlation is very close across the broader markets so things will shake around a bit.What happened to the old "cash is king"?I would love to hear more sharing about this topic in general and my question in particular.Thank a bunch men.
 
User avatar
daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

Futures vs stock, which one is leading the other?

December 19th, 2011, 6:05 pm

Quote Things are so tight that it goes back and forth. Correlation is very close across the broader markets so things will shake around a bit.what does this mean ?
knowledge comes, wisdom lingers
 
User avatar
zerdna
Posts: 3856
Joined: July 14th, 2002, 3:00 am

Futures vs stock, which one is leading the other?

December 20th, 2011, 3:55 am

QuoteOriginally posted by: daveangelQuote Things are so tight that it goes back and forth. Correlation is very close across the broader markets so things will shake around a bit.what does this mean ?it means high broad cor = high portfolio vol, professor -- factor and market diversification dies. I am puzzled by the notion i often hear about futures being tighter. Bid ask on SPY is tighter than on futures. Maybe it's not true if you want to trade enormous volume. I think though futures liquidity is a legend coming from floor brokers in Chicago -- these creeps still front run large orders in futures .
 
User avatar
daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

Futures vs stock, which one is leading the other?

December 20th, 2011, 7:13 am

Quoteit means high broad cor = high portfolio vol, professor -- factor and market diversification dies. I still don't understand what it is that is being shaken ?
knowledge comes, wisdom lingers
 
User avatar
paulptli
Posts: 35
Joined: October 29th, 2009, 9:34 pm

Futures vs stock, which one is leading the other?

December 22nd, 2011, 3:18 pm

QuoteBid ask on SPY is tighter than on futures.Both are at minimal spread, so the spread issue is non-essential for ES and SPY
 
User avatar
prfj
Posts: 19
Joined: December 11th, 2011, 10:36 am

Futures vs stock, which one is leading the other?

December 26th, 2011, 8:30 pm

Logically, since equites represent idiosyncratic risk and index futures systemic risk, the futures should lead. equities one by one can go up or down, but for global economic risks people trade the futures.
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On