TRANSACTIONS COSTS, INDEX ARBITRAGE AND NON-LINEAR DYNAMICS BETWEEN FTSE100 SPOT AND FUTURES: A THRESHOLD COINTEGRATION ANALYSIS
✍ Scribed by Juan Tao; Christopher J. Green
- Publisher
- John Wiley and Sons
- Year
- 2011
- Tongue
- English
- Weight
- 256 KB
- Volume
- 18
- Category
- Article
- ISSN
- 1076-9307
- DOI
- 10.1002/ijfe.463
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✦ Synopsis
ABSTRACT
We apply threshold cointegration to study the dynamics between the London FTSE100 spot index and its futures price, using percentage mispricing as the threshold variable to identify the no‐arbitrage band. Estimated asymmetries in the band suggest that short sale restrictions in the spot market represent a hurdle for arbitrage. Factors other than transactions costs did not affect the width of the no‐arbitrage band but did affect the price dynamics more directly. The evidence supports a conclusion that LSE SETS (1997) and LIFFE CONNECT (1998) trading systems reduced transactions costs and hence the width of the no‐arbitrage band. Copyright © 2011 John Wiley & Sons, Ltd.