Cookies?
Library Header Image
LSE Research Online LSE Library Services

Stock index futures mispricing: profit opportunities or risk premia?

Yadav, Pradeep K. and Pope, Peter (1994) Stock index futures mispricing: profit opportunities or risk premia? Journal of Banking and Finance, 18 (5). pp. 921-953. ISSN 0378-4266

Full text not available from this repository.

Identification Number: 10.1016/0378-4266(94)00026-3

Abstract

This paper reports empirical evidence on stock index futures pricing based on about four years of synchronous hourly data from the UK. Reported index values are based on firm quotes. Identified arbitrage opportunities are therefore actually exploitable and economically significant. The analysis controls for cash market settlement procedures. The results show that ex-ante trading rules would have generated attractive profits after transaction costs and after the risks of dividend uncertainties, marking to market and possible delays in execution are considered. The far contract and the near contract tend to be mispriced in the same direction. The mild tendency of futures to be overpriced in rising markets and underpriced in falling markets appears to be unimportant. Finally, significant positive relationships are observed between the absolute magnitude of mispricing and time to maturity and between mispricing and index option implied volatility.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/03784...
Additional Information: © 1994 Elsevier B.V.
Divisions: Accounting
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
Sets: Departments > Accounting
Date Deposited: 30 Oct 2013 13:38
Last Modified: 20 Nov 2019 06:27
URI: http://eprints.lse.ac.uk/id/eprint/53917

Actions (login required)

View Item View Item