Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash
Gerald Dwyer (),
Peter Locke and
No 95-17, FRB Atlanta Working Paper No. from Federal Reserve Bank of Atlanta
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)
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)
Journal Article: Index Arbitrage and Nonlinear Dynamics between the S&P 500 Futures and Cash (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
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 FRB Atlanta Working Paper No. from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Series data maintained by Meredith Rector ().