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The effect of the introduction of Cubes on the Nasdaq‐100 index spot‐futures pricing relationship

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  • Alexander A. Kurov
  • Dennis J. Lasser

Abstract

This paper examines the impact of the introduction of the Nasdaq‐100 Index Tracking Stock (referred to as Cubes) on the pricing relationship between Nasdaq‐100 futures and the underlying index. Observations obtained from tick‐by‐tick Nasdaq‐100 futures transactions and index value data support the hypothesis that the introduction of Cubes in March 1999 has led to improvements in the Nasdaq‐100 index futures pricing efficiency. Both the size and frequency of violations in futures price boundaries appear to be reduced. Furthermore, there appears to be an increase in the speed of the market response to observed violations. These results are attributed to the increased ease in establishing a spot Nasdaq‐100 index position after the introduction of the tracking stock. © 2002 John Wiley & Sons, Inc. Jrl Fut Mark 22: 197–218, 2002

Suggested Citation

  • Alexander A. Kurov & Dennis J. Lasser, 2002. "The effect of the introduction of Cubes on the Nasdaq‐100 index spot‐futures pricing relationship," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(3), pages 197-218, March.
    • Handle: RePEc:wly:jfutmk:v:22:y:2002:i:3:p:197-218
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    Cited by:

    1. Ching-Chung Lin & Min-Hsien Chiang, 2005. "Volatility effect of ETFs on the constituents of the underlying Taiwan 50 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1315-1322.
    2. Laurent Deville & Fabrice Riva, 2007. "Liquidity and Arbitrage in Options Markets: A Survival Analysis Approach," Review of Finance, European Finance Association, vol. 11(3), pages 497-525.
    3. Alexander, C. & Barbosa, A., 2008. "Hedging index exchange traded funds," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 326-337, February.
    4. Sunil S. Poshakwale & Jude W. Taunson & Anandadeep Mandal & Michael Theobald, 2019. "Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1135-1163, November.
    5. Hegde, Shantaram P. & McDermott, John B., 2004. "The market liquidity of DIAMONDS, Q's, and their underlying stocks," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1043-1067, May.
    6. Luqi Yuan & Shihong Zeng, 2023. "The Comparison and Analysis of Exchange Traded Funds (ETFs) Return Rates," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(2), pages 1-4.
    7. Palani-Rajan Kadapakkam & Umesh Kumar, 2009. "Impact of Liquidity on the Futures–Cash Basis: Evidence from the Indian Market," Working Papers 0094, College of Business, University of Texas at San Antonio.
    8. Laurent Deville, 2008. "Exchange Traded Funds: History, Trading and Research," Post-Print halshs-00162223, HAL.

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