ABSTRACT
Which market impounds new information faster into prices, the index futures market or the spot market? Transaction costs are lower in the futures market. Given that the magnitude of the transaction costs determines whether a trader can profitably trade on a given piece of information, the adjustment of prices to market-wide information (e.g. announcements of macroeconomic variables) should be faster in the futures market. In contrast, traders possessing information about the value of individual stocks will most likely trade that stock rather than the whole index.1 Consequently, stock-specific information should be reflected in the spot market first.
