Price Discovery in South African Financial Markets: investigating the relationship between South Africa’s stock index futures market and the underlying market

The authors gratefully acknowledge the assistance of Genesis Analytics in providing both financial and above all data support to the present project. The results were obtained for the South African Financial Services Board. The views expressed in this paper are those of the authors alone, and should not be taken to necessarily reflect those of either Genesis Analytics or the Financial Services Board in any form.
This paper investigates price discovery in the association between the South African stock index market, and the underlying market. Employing an unstructured VAR, on intraday data at the 2, 6, and 10 minute frequency for 1998, and end-of-day data for 1996-98, we find that futures markets lead spot markets. While precluding Fama informational efficiency, this does not preclude zero-arbitrage efficiency.