The interrelationship between the Hang Sang index futures contracts traded in Hong Kong and the underlying Hang Sang index is investigated. Causal relationships between the variables are studied using the full-information estimation technique, Granger's definition of causality (Granger, C. W. J. (1969) Econometrica, 37, 424-38) and Hsiao's operational test (Hsiao, C. (1981) Journal of Monetary Economics, 7, 85-106). The results indicate that futures prices cause cash index prices to change in the pre-crash period but not vice versa. In the post-crash period, it is found that a bidirectional causality exists between the two variables.
Scopus Subject Areas
- Economics and Econometrics