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An empirical examination of composite stock index futures pricing

โœ Scribed by Edward M. Saunders Jr.; Arvind Mahajan

Publisher
John Wiley and Sons
Year
1988
Tongue
English
Weight
1009 KB
Volume
8
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

T composite stock index futures prices to associated normative prices as specified by an arbitrage argument while controlling for significant market imperfections. This research contrasts with earlier empirical works in several ways. First, the arbitrage argument is maintained despite the assumptions that future interest rates and stock dividends are stochastic. Consequently, the assumption that theoretical forward prices and futures prices are insignificantly different is not invoked here. Second, the empirical methodology is designed to control for nonsynchronous trading between index components and the more liquid index futures which trade for fifteen minutes after the NYSE closes.

'For a review of earlier works on index futures, see Cornell (1985),

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