Price linkage between the US and Japanese futures across different time zones: An analysis of the minute-by-minute data

This study uses minute-by-minute data to analyze price discovery dynamics between the Nikkei 225 index in Japan and the E-mini S&P 500 index futures in the United States across their respective time zones. Specifically, we apply Gonzalo and Granger's (1995) and Hasbrouck's (1995) models to examine long-term price discovery in the markets and use a Granger-causality test to analyze the short-run dynamics of information transmission. We find a consistent result in the short- and long-run price discovery process. Our results show that the Nikkei 225 index futures price is influenced mainly by information from the location of trading rather than from the home market, supporting the trading-place-bias hypothesis. We also find that the leading role in information transmission has changed over time, from the United States in 2011–2012 to Japan in 2013.