Impacts of shifts in uncertainty on spot and futures price change serial correlation and standardized covariation measures
✍ Scribed by Dean Leistikow
- Publisher
- John Wiley and Sons
- Year
- 1993
- Tongue
- English
- Weight
- 1001 KB
- Volume
- 13
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Though the models and authors are too numerous to list here, the models include hedging-pressure, CAPM, consumption-based CAPM, and multi-good equilibrium models. The authors studying futures market risk premia include Keynes (1930), Dusak (1973), and Richard and Sundaresan (1981).
'The maturity T , time I basis is defined as the price of the futures contract maturing at time T minus the spot price, where both prices are observed at time I .
'There is no basis risk if, at all times before the maturity date, it is known that the spot and expiring futures prices will be equal. Sufficient conditions for no basis risk are that the spot and futures delivery grades and locations match and there are no transactions costs.
The lack of uniformity in the empirical findings regarding the spot and futures price change serial correlation and standardized covariation measures may be due to changes in the mix of uncertainty types. The Leistikow (1990) model is now reviewed and used to demonstrate these results.