Price discovery and changes in regimes for stock index futures

In this paper, we propose a cointegration system that considers regime shifts in the stock index futures markets. Meanwhile, three such markets-the S&P, the CAC 40, and the Nikkei 225 index futures-are examined using the proposed model. The empirical evidence shows that the cointegration system with consideration of regime shifts performs better than the usual cointegration system without considering regime shifts. Moreover, the three futures markets exhibit different patterns for distinct regimes.