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The effect of the introduction of Cubes on the Nasdaq-100 index spot-futures pricing relationship

✍ Scribed by Alexander A. Kurov; Dennis J. Lasser

Publisher
John Wiley and Sons
Year
2002
Tongue
English
Weight
155 KB
Volume
22
Category
Article
ISSN
0270-7314

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✦ Synopsis

Abstract

This paper examines the impact of the introduction of the Nasdaq‐100 Index Tracking Stock
(referred to as Cubes) on the pricing relationship between Nasdaq‐100 futures and the
underlying index. Observations obtained from tick‐by‐tick Nasdaq‐100 futures transactions
and index value data support the hypothesis that the introduction of Cubes in March 1999 has led to improvements
in the Nasdaq‐100 index futures pricing efficiency. Both the size and frequency of violations in futures
price boundaries appear to be reduced. Furthermore, there appears to be an increase in the speed of the market
response to observed violations. These results are attributed to the increased ease in establishing a spot
Nasdaq‐100 index position after the introduction of the tracking stock. Β© 2002 John Wiley &
Sons, Inc. Jrl Fut Mark 22: 197–218, 2002

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