The Profitability and Arbitrage Efficiency of the Chicago Mercantile Exchange Nikkei 225 Futures

Jieye Qin ()
Additional contact information
Jieye Qin: Anhui Jianzhu University (North Campus)

Asia-Pacific Financial Markets, 2025, vol. 32, issue 2, No 15, 743-771

Abstract: Abstract This article studies the profitability and arbitrage efficiency of the Chicago Mercantile Exchange (CME) Nikkei 225 futures. As one of the most typical quanto derivatives in the world, the CME Nikkei futures is traded in dollars while the underlying Nikkei index is traded in yen. The special characteristic involves more complicated uncertainties, which necessitate an investigation into its profitability and efficiency. To this end, we construct an arbitrage-free quanto pricing model to examine the mispricing of the CME Nikkei futures and the underlying spot prices for potential arbitrage opportunities. Distinguishing an ex-post trading rule from an ex-ante trading rule, we conduct non-parametric moving block bootstrap simulations to test the significance of profitability in the CME. The results show insignificant ex-post profitability but significant ex-ante profitability before and after the 2008 global financial crisis. Moreover, delayed execution significantly impacts the futures profitability. Profitable arbitrage opportunities are confirmed by implied transaction costs and explained by lagged absolute mispricing, lagged error, futures time to maturity, stock volatility, and trading volume in the CME. These findings have important implications for practitioners in their cross-border arbitrage trades, and for policy makers in their regulation of quantos in futures globalization.

Keywords: Arbitrage; Efficiency; Globalization; Mispricing; Profitability (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10690-024-09469-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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: https://EconPapers.repec.org/RePEc:kap:apfinm:v:32:y:2025:i:2:d:10.1007_s10690-024-09469-4

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10690/PS2

DOI: 10.1007/s10690-024-09469-4

Access Statistics for this article

Asia-Pacific Financial Markets is currently edited by Jiro Akahori

More articles in Asia-Pacific Financial Markets from Springer, Japanese Association of Financial Economics and Engineering
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().