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Trading Frictions and Futures Price Movements

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  • Goldenberg, David H.

Abstract

In a perfectly efficient market, after adjusting for drift, futures prices would follow a martingale model. The martingale property implies that the changes in futures prices should be serially uncorrelated. This study finds that the price changes of the S&P 500 futures contracts during 1983 and 1984 have negative serial correlation and are better described by a random walk model with reflecting barriers or by a random walk model with reflecting barriers and mean reversion.

Suggested Citation

  • Goldenberg, David H., 1988. "Trading Frictions and Futures Price Movements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(4), pages 465-481, December.
    • Handle: RePEc:cup:jfinqa:v:23:y:1988:i:04:p:465-481_01
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    Cited by:

    1. Chen, Chao & Jeng, Jau-Lian, 1996. "The impact of price limits on foreign currency futures' price volatility and market efficiency," Global Finance Journal, Elsevier, vol. 7(1), pages 13-25.
    2. Twm Evans, 2006. "Efficiency tests of the UK financial futures markets and the impact of electronic trading systems," Applied Financial Economics, Taylor & Francis Journals, vol. 16(17), pages 1273-1283.

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