IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v10y1985i2p1-29.html
   My bibliography  Save this article

Arbitrage Opportunities in The Australian Share Price Index Futures Contract

Author

Listed:
  • John Bowers

    (Australian Graduate School of Management.)

  • Garry Twite

    (Australian Graduate School of Management.)

Abstract

This study examines the pricing behaviour of share price index futures contracts traded on the Australian market. Particularly, we investigate the relationship between futures prices and the no-arbitrage price predicted by the current spot prices. Consistent with similar studies of U.S. markets, we find that the observed share price index futures prices differ from those predicted by the no-arbitrage prices, but that the size and sign of this difference is not constant across the contracts or across the time period included in our sample. The explanations suggested in the literature for the existence of these price differences are predominantly institutional in nature. These include differential tax treatment, short selling constraints, thin trading and transaction costs. We find that these explanations do not appear to be capable of explaining the size or sign of the pricing differences we observe.

Suggested Citation

  • John Bowers & Garry Twite, 1985. "Arbitrage Opportunities in The Australian Share Price Index Futures Contract," Australian Journal of Management, Australian School of Business, vol. 10(2), pages 1-29, December.
  • Handle: RePEc:sae:ausman:v:10:y:1985:i:2:p:1-29
    DOI: 10.1177/031289628501000201
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/031289628501000201
    Download Restriction: no

    File URL: https://libkey.io/10.1177/031289628501000201?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Elton, Edwin J & Gruber, Martin J & Rentzler, Joel, 1984. "Intra-Day Tests of the Efficiency of the Treasury Bill Futures Market," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 129-137, February.
    2. Cornell, Bradford & Reinganum, Marc R, 1981. "Forward and Futures Prices: Evidence from the Foreign Exchange Markets," Journal of Finance, American Finance Association, vol. 36(5), pages 1035-1045, December.
    3. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simon Loria & Toan Pham & Ah Boon Sim, 1991. "The Performance of a Stock Index Futures Based Portfolio Insurance Scheme: Australian Evidence," Working Paper Series 5, Finance Discipline Group, UTS Business School, University of Technology, Sydney.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. A. Bellier-Delienne, 2005. "Synthèse sur les Options de Livraison dans les Contrats à Terme," THEMA Working Papers 2005-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Lioui, Abraham, 1998. "Currency risk hedging: Futures vs. forward," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 61-81, January.
    3. Poskitt, Russell, 2008. "Interest rate futures and forwards: Evidence from the sterling futures and FRA markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 399-412, December.
    4. Bühler, Wolfgang & Kempf, Alexander, 1994. "Optimale Arbitragestrategien in Terminmärkten," ZEW Discussion Papers 94-10, ZEW - Leibniz Centre for European Economic Research.
    5. Jonathan Kearns, 2007. "Commodity Currencies: Why Are Exchange Rate Futures Biased if Commodity Futures Are Not?," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 60-73, March.
    6. Berglund, T. & Kabir, R., 1995. "What explains the difference between the futures' price and its "fair" value? : evidence from the european options exchange," Other publications TiSEM 323234f7-ff9e-46bb-aa61-7, Tilburg University, School of Economics and Management.
    7. Kempf, Alexander & Spengel, Christoph, 1993. "Die Bewertung des DAX-Futures: Der Einfluß von Dividenden," ZEW Discussion Papers 93-12, ZEW - Leibniz Centre for European Economic Research.
    8. Garry J. Twite, 1993. "Effect of Stochastic Interest Rates on the Pricing of SPI Futures Contracts," Australian Journal of Management, Australian School of Business, vol. 17(2), pages 259-269, December.
    9. Gupta, Anurag & Subrahmanyam, Marti G., 2000. "An empirical examination of the convexity bias in the pricing of interest rate swaps," Journal of Financial Economics, Elsevier, vol. 55(2), pages 239-279, February.
    10. Stanescu, Silvia & Tunaru, Radu & Candradewi, Made Reina, 2014. "Forward–futures price differences in the UK commercial property market: Arbitrage and marking-to-model explanations," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 177-188.
    11. Kodres, Laura E, 1993. "Tests of Unbiasedness in the Foreign Exchange Futures Markets: An Examination of Price Limits and Conditional Heteroscedasticity," The Journal of Business, University of Chicago Press, vol. 66(3), pages 464-490, July.
    12. Hodrick, Robert J. & Srivastava, Sanjay, 1987. "Foreign currency futures," Journal of International Economics, Elsevier, vol. 22(1-2), pages 1-24, February.
    13. Sah, Nilesh B. & Banerjee, Anandi & Malm, James & More, Deepak G., 2022. "A risky affair: Dual class and FX hedging," Finance Research Letters, Elsevier, vol. 47(PA).
    14. Wimschulte, Jens, 2010. "The futures and forward price differential in the Nordic electricity market," Energy Policy, Elsevier, vol. 38(8), pages 4731-4733, August.
    15. Robert W. Kolb & Gerald D. Gay, 1985. "A Pricing Anomaly In Treasury Bill Futures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 8(2), pages 157-167, June.
    16. Joshua V. Rosenberg & Leah G. Traub, 2006. "Price discovery in the foreign currency futures and spot market," Staff Reports 262, Federal Reserve Bank of New York.
    17. Poskitt, Russell, 2008. "The truth about interest rate futures and forwards: Evidence from high frequency data," Global Finance Journal, Elsevier, vol. 18(3), pages 319-336.
    18. Douglas Foster, F. & Lee, Adrian D. & Liu, Wai-Man, 2019. "CFDs, forwards, futures and the cost-of-carry," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 183-198.
    19. Annie Koh & Richard M. Levich, 1989. "Synthetic Eurocurrency Interest Rate Futures Contracts: Theory and Evidence," NBER Working Papers 3055, National Bureau of Economic Research, Inc.
    20. Lin, James Wuh, 1996. "Arbitrage, carrying costs, and inflation: A reexamination of market efficiency in treasury bill futures," International Review of Economics & Finance, Elsevier, vol. 5(2), pages 207-222.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:10:y:1985:i:2:p:1-29. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.