Funding constraints, financial crisis, and price discovery between the futures and spot markets

We investigate the effect of funding constraints and the financial crisis on the pricing dynamics between the spot and futures markets. Tighter funding constraints and the presence of a financial crisis deter informed investors from utilizing their informational advantage in the futures market, reducing the leading role and information shares of futures prices. Funding constraints negatively affect the probability of informed trading and large trading in the futures markets. Our findings are in line with the recent theoretical perspective that indicates both factors significantly affect informed trading, the cross-market process of price discovery, and financial stability.