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Mean Reversion and Basis Dynamics

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  • Michael Theobald
  • Peter Yallup

Abstract

An analytical relationship between basis change autocorrelations and thin trading effects together with partial adjustment factors is developed. Less than full price adjustments are demonstrated to lead to negative autocorrelations in basis innovation series in addition to those induced by thin trading effects. Numerical and empirical analyses explore the interrelationships between these effects and provide evidence for the presence of both effects in intradaily cash and futures data. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21: 797–818, 2001

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  • Michael Theobald & Peter Yallup, 2001. "Mean Reversion and Basis Dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(9), pages 797-818, September.
    • Handle: RePEc:wly:jfutmk:v:21:y:2001:i:9:p:797-818
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