IDEAS home Printed from https://ideas.repec.org/a/sae/emffin/v7y2008i3p263-292.html
   My bibliography  Save this article

Mispricing, Volume, Volatility and Open Interest

Author

Listed:
  • Vipul

Abstract

Interdependence of the mispricing, volatility, volume and open interest of stock futures and the volatility and volume of their underlying shares is examined in a vector autoregressive framework. There is evidence of significant mispricing that persists for one day but is not explained by other variables. An increase in the volatility of futures is generally followed by an increase in the volatility of the underlying. The volatility and volume of futures and the underlying exhibit alter–nating increase/decrease cycles with up to five–day lags. These properties can be very useful in forecasting the mispricing and the volatility, volume and open interest for futures and their underlying shares. Futures mispricing does not change financial activities in any predictable manner.

Suggested Citation

  • Vipul, 2008. "Mispricing, Volume, Volatility and Open Interest," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(3), pages 263-292, December.
    • Handle: RePEc:sae:emffin:v:7:y:2008:i:3:p:263-292
    DOI: 10.1177/097265270800700303
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/097265270800700303
    Download Restriction: no
    File URL: https://libkey.io/10.1177/097265270800700303?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. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
    2. Kelvin Wai Lung Lai & Andrew Marshall, 2002. "A Study of Mispricing and Parity in the Hang Seng Futures and Options Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 373-394.
    3. Miller, Merton H & Muthuswamy, Jayaram & Whaley, Robert E, 1994. "Mean Reversion of Standard & Poor's 500 Index Basis Changes: Arbitrage-Induced or Statistical Illusion?," Journal of Finance, American Finance Association, vol. 49(2), pages 479-513, June.
    4. Garrett Ian & Taylor Nicholas, 2001. "Intraday and Interday Basis Dynamics: Evidence from the FTSE 100 Index Futures Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(2), pages 1-22, July.
    5. Chung, Y Peter, 1991. "A Transactions Data Test of Stock Index Futures Market Efficiency and Index Arbitrage Profitability," Journal of Finance, American Finance Association, vol. 46(5), pages 1791-1809, December.
    6. David M. Modest & Mahadevan Sundaresan, 1983. "The relationship between spot and futures prices in stock index futures markets: Some preliminary evidence," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 3(1), pages 15-41, March.
    7. Chen, Nai-Fu & Cuny, Charles J & Haugen, Robert A, 1995. "Stock Volatility and the Levels of the Basis and Open Interest in Future Contracts," Journal of Finance, American Finance Association, vol. 50(1), pages 281-300, March.
    8. Darren Butterworth & Phil Holmes, 2000. "Mispricing in stock index futures contracts: evidence for the FTSE 100 and FTSE mid 250 contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 7(12), pages 795-801.
    9. Hemler, Michael L. & Longstaff, Francis A., 1991. "General Equilibrium Stock Index Futures Prices: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(3), pages 287-308, September.
    10. Stephen Ferris & Hun Park & Kwangwoo Park, 2002. "Volatility, open interest, volume, and arbitrage: evidence from the S&P 500 futures market," Applied Economics Letters, Taylor & Francis Journals, vol. 9(6), pages 369-372.
    11. Brennan, Michael J & Schwartz, Eduardo S, 1990. "Arbitrage in Stock Index Futures," The Journal of Business, University of Chicago Press, vol. 63(1), pages 7-31, January.
    12. Figlewski, Stephen, 1984. "Hedging Performance and Basis Risk in Stock Index Futures," Journal of Finance, American Finance Association, vol. 39(3), pages 657-669, July.
    13. A. Craig MacKinlay, Krishna Ramaswamy, 1988. "Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices," The Review of Financial Studies, Society for Financial Studies, vol. 1(2), pages 137-158.
    14. Vesa Puttonen, 1993. "Short sales restrictions and the temporal relationship between stock index cash and derivatives markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(6), pages 645-664, September.
    15. Theobald, M. & Yallup, P., 1996. "Settlement, Tax and Non-Synchronous Effects in the Basis of U.K. Stock Index Futures," Papers 96-01, University of Birmingham - International Financial Group.
    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. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.

    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. Chang, Charles & Lin, Emily, 2015. "Cash-futures basis and the impact of market maturity, informed trading, and expiration effects," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 197-213.
    2. Tse, Yiuman, 2001. "Index arbitrage with heterogeneous investors: A smooth transition error correction analysis," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1829-1855, October.
    3. Chen, Chin-Ho, 2019. "Downside jump risk and the levels of futures-cash basis," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Henker, Thomas & Martens, Martin, 2005. "Index futures arbitrage before and after the introduction of sixteenths on the NYSE," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 353-373, June.
    5. Bialkowski, Jedrzej & Jakubowski, Jacek, 2008. "Stock index futures arbitrage in emerging markets: Polish evidence," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 363-381.
    6. Tu, Anthony H. & Hsieh, Wen-Liang G. & Wu, Wei-Shao, 2016. "Market uncertainty, expected volatility and the mispricing of S&P 500 index futures," Journal of Empirical Finance, Elsevier, vol. 35(C), pages 78-98.
    7. Tim Brailsford & Allan Hodgson, 1997. "Mispricing in Stock Index Futures: A Re†Examination Using the SPI," Australian Journal of Management, Australian School of Business, vol. 22(1), pages 21-45, June.
    8. Jianqiang Hu & Tianxiang Wang & Wenwei Hu & Jun Tong, 2020. "The impact of trading restrictions and margin requirements on stock index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(7), pages 1176-1191, July.
    9. Kristoffer Glover & Hardy Hulley, 2022. "Financially constrained index futures arbitrage," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(9), pages 1688-1703, September.
    10. Arago, V. & Corredor, P. & Santamaria, R., 2003. "Transaction costs, arbitrage, and volatility spillover: a note," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 399-415.
    11. Chau, Frankie & Kuo, Jing-Ming & Shi, Yukun, 2015. "Arbitrage opportunities and feedback trading in emissions and energy markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 130-147.
    12. Laurent Deville & Carole Gresse & Béatrice de Séverac, 2014. "Direct and Indirect Effects of Index ETFs on Spot†Futures Pricing and Liquidity: Evidence from the CAC 40 Index," European Financial Management, European Financial Management Association, vol. 20(2), pages 352-373, March.
    13. 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.
    14. 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.
    15. Pascal Alphonse, 2007. "Mispricing Persistence and the Effectiveness of Arbitrage Trading," Multinational Finance Journal, Multinational Finance Journal, vol. 11(1-2), pages 123-156, March-Jun.
    16. Nicholas Taylor, 2007. "A New Econometric Model of Index Arbitrage," European Financial Management, European Financial Management Association, vol. 13(1), pages 159-183, January.
    17. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.
    18. repec:dau:papers:123456789/7689 is not listed on IDEAS
    19. J Fedderke & Michelle Joao, 2001. "Arbitrage, Cointegration And Efficiency In Financial Markets In The Presence Of Financial Crises," South African Journal of Economics, Economic Society of South Africa, vol. 69(3), pages 366-384, September.
    20. Chris Bilson & Tim Brailsford & Twm Evans, 2005. "The International Transmission of Arbitrage Information Across Futures Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 973-1000, June.
    21. Białkowski, Jędrzej & Perera, Devmali, 2019. "Stock index futures arbitrage: Evidence from a meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 284-294.

    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:emffin:v:7:y:2008:i:3:p:263-292. 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.ifmr.ac.in .

    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.