PRICE DISCOVERY IN THE HANG SENG INDEX MARKETS:INDEX,FUTURES, AND THE TRACKER FUND RAYMOND W. SO YIUMAN TSE* In this paper, price discovery among the Hang Seng Index markets is inves- tigated using the Hasbrouck and Gonzalo and Granger common-factor models and the multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) model. Minute-by-minute data from the Hang Seng Index, Hang Seng Index futures, and the tracker fund show that the movements of the three markets are interrelated. The futures markets contain the most information, followed by the spot market. The tracker fund does not contribute to the price discovery process. The three markets exhibit spillover effects, indicating that their second moments are linked, even though the flow of information from the tracker fund to the other markets is minimal. Overall results suggest that the three markets have different degrees of information processing abilities, although they are We are grateful to an anonymous reviewer, Robert Webb (the editor), and participants at the 13th Annual Asia-Pacific Futures Research Symposium in Shanghai, China, 2002, for valuable com- ments and suggestions. *Correspondence author, Department of Finance, College of Business, University of Texas, San Antonio, TX 78249-0633; e-mail: ytse@utsa.edu Received April 2003; Accepted September 2003 ■ Raymond W. So is an Associate Professor of Finance in the Department of Finance, Chinese University of Hong Kong in Shatin, Hong Kong. ■ Yiuman Tse is a Professor of Finance in the Department of Finance at the College of Business at the University of Texas in San Antonio, Texas. The Journal of Futures Markets, Vol. 24, No. 9, 887–907 (2004) © 2004 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/fut.20112