LEAD-LAG RELATIONSHIP BETWEEN SPOT-INDEX AND FUTURES-PRICE OF THE NIKKEI-STOCK-AVERAGE

This paper examines the lead-lag relationship between the spot index a nd futures price of the Nikkei Stock Average. Using daily data in the postcrash period we investigate the interaction between the spot and f utures series through the error correction model. Two versions of erro r correction models are considered, depending on the postulated long-r un equilibrium relationship. It is found that lagged changes in the fu tures price affect the short-term adjustment in the spot index, but no t vice versa. Forecasting models for the spot index are also construct ed using the univariate time series approach and the vector autoregres sive method. For the post-sample forecast comparison the error correct ion models produce the best results. The vector autoregressive method performs better than the martingale model, while the univariate time s eries method gives the poorest forecasts.