EconPapers    
Economics at your fingertips  
 

Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash

Gerald P Dwyer (), Peter Locke and Wei Yu

No 95-17, Working Paper from Federal Reserve Bank of Atlanta

Abstract: We use a cost of carry model with nonzero transactions costs to motivate estimation of a nonlinear dynamic relationship between the S&P 500 futures and cash indexes. Discontinuous arbitrage suggests that a threshold error correction mechanism may characterize many aspects of the relationship between the futures and cash indexes. We use minute-by-minute data on the S&P 500 futures and cash indexes. The results indicate that nonlinear dynamics are important and related to arbitrage and suggest that arbitrage is associated with more rapid convergence of the basis to the cost of carry than would be indicated by a linear model.

Keywords: Arbitrage; Futures; Stock market (search for similar items in EconPapers)
Date: 1995
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Published in Review of Financial Studies, Spring 1996

Downloads: (external link)
http://www.frbatlanta.org/filelegacydocs/wp9517.pdf (application/pdf)

Related works:
Journal Article: Index Arbitrage and Nonlinear Dynamics between the S&P 500 Futures and Cash (1996) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedawp:95-17

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Atlanta
Contact information at EDIRC.
Series data maintained by Meredith Rector ().

 
Page updated 2014-12-15
Handle: RePEc:fip:fedawp:95-17