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Inter-market spread trading: evidence from UK index futures markets

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  • Darren Butterworth
  • Phil Holmes

Abstract

This paper employs the theoretical no-arbitrage conditions to investigate whether the inter-market spread comprising of positions in the FTSE 100 contract and FTSE Mid 250 contract is priced according to fair value. The results show that while transaction cost limits are violated on a number of occasions, the overall profitability of the strategy is seriously impaired by the difficulty, which traders face, in liquidating their positions before relative market movements between the two legs of the spread occur.

Suggested Citation

  • Darren Butterworth & Phil Holmes, 2002. "Inter-market spread trading: evidence from UK index futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 12(11), pages 783-790.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:11:p:783-790
    DOI: 10.1080/09603100110044236
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    Cited by:

    1. C. L. Dunis & Jason Laws & Ben Evans, 2006. "Trading futures spreads: an application of correlation and threshold filters," Applied Financial Economics, Taylor & Francis Journals, vol. 16(12), pages 903-914.
    2. John B. Mitchell, 2010. "Soybean Futures Crush Spread Arbitrage: Trading Strategies and Market Efficiency," JRFM, MDPI, vol. 3(1), pages 1-34, December.
    3. Lubnau, Thorben & Todorova, Neda, 2015. "Trading on mean-reversion in energy futures markets," Energy Economics, Elsevier, vol. 51(C), pages 312-319.
    4. Andreas Karathanasopoulos & Christian Dunis & Samer Khalil, 2016. "Modelling, forecasting and trading with a new sliding window approach: the crack spread example," Quantitative Finance, Taylor & Francis Journals, vol. 16(12), pages 1875-1886, December.
    5. Andreas Karathanasopoulos, 2017. "Modelling and trading commodities with a new deep belief network," Economics and Business Letters, Oviedo University Press, vol. 6(2), pages 28-34.

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