Volume 16 | Issue 3 | Article 2

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An Analysis of Price Linkages among DJIA Index, Futures, and Exchange-traded Fund Markets
Hung-Gay Fung, Qingfeng "Wilson" Liu, and Yiuman Tse (C22, F36, G13)

We use multivariate cointegration models and trading simulations with intraday price series in 1998 and 2004 to investigate cross-market linkages among the DJIA index, futures, and exchange-traded funds (ETF). There appear to be significant mean-reverting tendencies between the index and futures and between the ETF and futures. The futures market leads both the index and the ETF market in the price discovery. Our out-of-sample trading strategies are able to generate statistically and economically significant profits for the 1998 data, but not for the 2004 data. The results provide evidence of a notable improvement in market efficiency over the period.