The time-varying lead-lag relationship between index futures and the cash index and its factors

This paper investigates the time-varying lead-lag relationship between CSI 300 index futures and the cash index at intraday and daily frequencies under different market conditions, which is crucial in the price discovery research but rarely examined by the literature. Using a new method that is based on dynamic time warping and can capture the dynamic lead-lag relationship up to the intraday level, we find that index futures tend to lead the cash index by 0-5 minutes but it occasionally lags the cash index, and this relationship is variably affected by factors according to market conditions. Specifically, at both of the intraday and daily frequencies, the lead of index futures decreases with market volatility and the relative intensity of trading activity of index futures. The results also unveil the asymmetric effects of overnight information from the cash market on the lead times of both index futures and the cash index at a daily frequency. Moreover, the synchronization of trading hours strengthened the link between the two markets. These results have significant implications for price discovery in these markets.