Intraday information diffusion on nonsimultaneous trading

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Lv, Chenzi
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Dermot Hayes
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The Department of Economic Science was founded in 1898 to teach economic theory as a truth of industrial life, and was very much concerned with applying economics to business and industry, particularly agriculture. Between 1910 and 1967 it showed the growing influence of other social studies, such as sociology, history, and political science. Today it encompasses the majors of Agricultural Business (preparing for agricultural finance and management), Business Economics, and Economics (for advanced studies in business or economics or for careers in financing, management, insurance, etc).

The Department of Economic Science was founded in 1898 under the Division of Industrial Science (later College of Liberal Arts and Sciences); it became co-directed by the Division of Agriculture in 1919. In 1910 it became the Department of Economics and Political Science. In 1913 it became the Department of Applied Economics and Social Science; in 1924 it became the Department of Economics, History, and Sociology; in 1931 it became the Department of Economics and Sociology. In 1967 it became the Department of Economics, and in 2007 it became co-directed by the Colleges of Agriculture and Life Sciences, Liberal Arts and Sciences, and Business.

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  • Department of Economic Science (1898–1910)
  • Department of Economics and Political Science (1910-1913)
  • Department of Applied Economics and Social Science (1913–1924)
  • Department of Economics, History and Sociology (1924–1931)
  • Department of Economics and Sociology (1931–1967)

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This dissertation presents an in-depth investigation of the S&P 500 pre-market futures predictive power on its underlying index. At the outset, this research develops an information diffusion model of market-to-firm information flow on an intraday futures and index trading framework. This model incorporates fundamental and myopic traders with irrational expectations and generates momentum and reversal in return covariance. The market equilibrium leads to a theoretical proposition that the overnight returns on the futures market will predict next day spot index movements. The analysis theoretically implies that the information spillover strengthens at the spot opening, and the level of market uncertainty is negatively correlated with the strength of price linkage.The subsequent chapter empirically tests this proposition utilizing a modified vector autoregressive model with thirty-five intraday S&P 500 returns. The results evidently validate that the S&P 500 pre-market futures returns are positively correlated to the index returns on the spot opening as well as across the entire regular trading session. Additionally, the spillover size increases as the futures corresponding return intervals become narrower and closer to the spot opening. This research introduces several signal trading strategies to demonstrate the usefulness of the pre-market futures predictive power. The backtesting locates several pre-market signals that outperform the index benchmark. Consistent with the aforementioned discoveries, the drawdown analysis finds that the magnitude of information spillover is more pronounced when market volatility is low. The information advantage of the pre-market futures market is validated for these strategies.

Tue Dec 01 00:00:00 UTC 2020