An intraday test of pricing and arbitrage opportunities in the New Zealand bank bill futures market
✍ Scribed by Russell Poskitt
- Publisher
- John Wiley and Sons
- Year
- 2002
- Tongue
- English
- Weight
- 223 KB
- Volume
- 22
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
This paper examines pricing and arbitrage opportunities in the New Zealand bank bill futures market using an
intraday data set. The key findings are: (a) the implied forward rate model yields biased estimates of
the bill futures yield but the bias is small and not economically significant; (b) ex post
synthetic bill opportunities are more numerous than ex post quasi‐arbitrage opportunities but the yield
enhancements are minor; (c) ex post quasi‐arbitrage opportunities are substantially less
frequent and less profitable than reported by prior studies using closing data; and (d) arbitrage
opportunities decline when execution delays are introduced but the declines are not statistically significant. In
broad terms, the bill futures market is efficient with respect to quasi‐arbitrage but less so with respect
to synthetic bill opportunities. The results also suggest that arbitrage opportunities are not generally
available to arbitrageurs without access to the interbank bill market. The incidence of arbitrage opportunities
is on a par with levels reported in intraday studies of stock index and foreign exchange markets. This
illustrates the importance of using high frequency data to assess transactional efficiency in financial markets.
© 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:519–555, 2002