A Transactions Data Test of Stock Index Futures Market Efficiency and Index Arbitrage Profitability

This paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts. The spot value of the index is computed with transactions prices for the component shares of the index obtained fr...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of finance (New York) 1991-12, Vol.46 (5), p.1791-1809
Main Author: CHUNG, Y. PETER
Format: Article
Language:English
Subjects:
Arbitrage
Efficiency
Futures
Futures contracts
Futures market
Futures markets
Market prices
Mathematical models
Periodical indexing
Profitability
Profitability index
Securities markets
Short sales
Statistical analysis
Stock exchange
Stock index futures
Stock market indices
Stock prices
Studies
Transaction costs
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts. The spot value of the index is computed with transactions prices for the component shares of the index obtained from the Fitch database. The tests account for transaction costs, execution lags, and the uptick rule for short sales of stocks. Results indicate that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1991.tb04644.x