Financially constrained index futures arbitrage

Glover, K; Hulley, H

Financially constrained index futures arbitrage

Glover, K

Hulley, H

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Publisher:: Wiley
Publication Type:: Journal Article
Citation:: Journal of Futures Markets, 2022, 42, (9), pp. 1688-1703
Issue Date:: 2022-01-01

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Field	Value	Language
dc.contributor.author	Glover, K https://orcid.org/0000-0002-1518-3482
dc.contributor.author	Hulley, H https://orcid.org/0000-0002-6684-8309
dc.date.accessioned	2022-11-02T02:50:10Z
dc.date.available	2022-11-02T02:50:10Z
dc.date.issued	2022-01-01
dc.identifier.citation	Journal of Futures Markets, 2022, 42, (9), pp. 1688-1703
dc.identifier.issn	0270-7314
dc.identifier.issn	1096-9934
dc.identifier.uri	http://hdl.handle.net/10453/163139
dc.description.abstract	We develop two models for index futures arbitrage that take the financing constraints faced by real-world arbitrageurs into account. Our models predict that the price of an index futures contract and the value of its underlying index should deviate further from their theoretical cost-of-carry relationship when (a) the contract has a long time to go before expiry, and (b) volatility is high. The fact that these predictions enjoy considerable empirical support highlights the importance of financing constraints for explaining index futures mispricing.
dc.language	English
dc.publisher	Wiley
dc.relation.ispartof	Journal of Futures Markets
dc.relation.isbasedon	10.1002/fut.22293
dc.rights	info:eu-repo/semantics/embargoedAccess
dc.subject	1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.title	Financially constrained index futures arbitrage
dc.type	Journal Article
utslib.citation.volume	42
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access	*
pubs.consider-herdc	false
utslib.copyright.embargo	2023-12-07T00:00:00+1000Z
dc.date.updated	2022-11-02T02:50:09Z
pubs.issue	9
pubs.publication-status	Published
pubs.volume	42
utslib.citation.issue	9

Abstract:

We develop two models for index futures arbitrage that take the financing constraints faced by real-world arbitrageurs into account. Our models predict that the price of an index futures contract and the value of its underlying index should deviate further from their theoretical cost-of-carry relationship when (a) the contract has a long time to go before expiry, and (b) volatility is high. The fact that these predictions enjoy considerable empirical support highlights the importance of financing constraints for explaining index futures mispricing.

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http://hdl.handle.net/10453/163139