Do Different Futures Contracts in One Stock Exchange Have the Same Discovery Capability? Empirical Study of Taiwan Futures Exchange

This paper examines all the four index futures contracts (TX, MTX, TE, and TF) available on the Taiwan Futures Exchange to investigate the price discovery of the Taiwan index futures market. By applying the error correction model (ECM), Gonzalo-Granger information share, and generalized impulse response function (GIRF), empirical results show that the interaction patterns between index futures and spot of these four systems are different. While index futures contracts are faster in updating prices and disseminate more information in the TX, MTX, and TE systems, the TF index futures does not dominate the process of information transmission. In other words, the characteristics of futures do not guarantee a major role in price discovery.