Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method
There have been heated debates about the role of stock index futures in the financial market, especially during the crash periods. In this paper, a multiagent spot-futures market model is developed to analyze the micromechanism of shock transfer across spot and futures markets. We assume that there...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/7386169 |
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| author | Xuan Zhou Menggang Li |
| author_facet | Xuan Zhou Menggang Li |
| author_sort | Xuan Zhou |
| collection | DOAJ |
| description | There have been heated debates about the role of stock index futures in the financial market, especially during the crash periods. In this paper, a multiagent spot-futures market model is developed to analyze the micromechanism of shock transfer across spot and futures markets. We assume that there are two stocks and one stock index futures contract in the spot-futures market. Agents are heterogeneous, including fundamentalists, chartists, noise traders, and arbitragers. The spot market and the futures market are linked by arbitragers. The simulation results show that our spot-futures market model can reproduce various important stylized facts, including the price co-movement between stock index prices and index futures prices and the fat-tailed distribution of the returns of risky assets and the basis. Further analysis shows that when we introduce an exogenous fundamental shock to one of the stocks, the backwardation phenomenon appears in the futures market and the shock is widespread across the whole market by means of index futures. Moreover, the backwardation gradually disappears when the number of arbitragers increases. Besides, when there are few arbitragers or when there are sufficient arbitragers, shocks cannot be transferred to other stocks via the futures market, while an intermediate level of arbitrage will amplify the shock transfer and hurt market stability. These findings underscore that arbitragers play an important role in spot-futures market interaction and shock transfer, and adequate arbitrage trading during crises may help eliminate the positive basis and halt the further spread of the crises. |
| format | Article |
| id | doaj-art-89ef682f640e435287a9cca36bcc94ae |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-89ef682f640e435287a9cca36bcc94ae2025-08-20T03:37:50ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/73861697386169Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling MethodXuan Zhou0Menggang Li1School of Economics and Management, Beijing Jiaotong University, Beijing 100044, ChinaBeijing Laboratory of National Economic Security Early-Warning Engineering, Beijing Jiaotong University, Beijing 100044, ChinaThere have been heated debates about the role of stock index futures in the financial market, especially during the crash periods. In this paper, a multiagent spot-futures market model is developed to analyze the micromechanism of shock transfer across spot and futures markets. We assume that there are two stocks and one stock index futures contract in the spot-futures market. Agents are heterogeneous, including fundamentalists, chartists, noise traders, and arbitragers. The spot market and the futures market are linked by arbitragers. The simulation results show that our spot-futures market model can reproduce various important stylized facts, including the price co-movement between stock index prices and index futures prices and the fat-tailed distribution of the returns of risky assets and the basis. Further analysis shows that when we introduce an exogenous fundamental shock to one of the stocks, the backwardation phenomenon appears in the futures market and the shock is widespread across the whole market by means of index futures. Moreover, the backwardation gradually disappears when the number of arbitragers increases. Besides, when there are few arbitragers or when there are sufficient arbitragers, shocks cannot be transferred to other stocks via the futures market, while an intermediate level of arbitrage will amplify the shock transfer and hurt market stability. These findings underscore that arbitragers play an important role in spot-futures market interaction and shock transfer, and adequate arbitrage trading during crises may help eliminate the positive basis and halt the further spread of the crises.http://dx.doi.org/10.1155/2021/7386169 |
| spellingShingle | Xuan Zhou Menggang Li Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method Discrete Dynamics in Nature and Society |
| title | Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method |
| title_full | Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method |
| title_fullStr | Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method |
| title_full_unstemmed | Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method |
| title_short | Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method |
| title_sort | shock transfer in futures and spot markets an agent based simulation modelling method |
| url | http://dx.doi.org/10.1155/2021/7386169 |
| work_keys_str_mv | AT xuanzhou shocktransferinfuturesandspotmarketsanagentbasedsimulationmodellingmethod AT menggangli shocktransferinfuturesandspotmarketsanagentbasedsimulationmodellingmethod |