Economics at your fingertips  

Cash-futures basis and the impact of market maturity, informed trading, and expiration effects

Charles Chang and Emily Lin

International Review of Economics & Finance, 2015, vol. 35, issue C, 197-213

Abstract: Cash-futures basis, a proxy for arbitrage opportunities, is examined, and the impact of informed trading and the changing roles of speculators and arbitrageurs are analyzed in both the non-expiration and near-expiration periods. While we observe that market frictions account to some extent for negative spreads, we also found that volatility and liquidity widen spread magnitude, suggesting that speculation dominates arbitrage in this market. Puzzlingly, we found that informed trading impacts spreads in the opposite manner, depending on whether the contract is near expiration, highlighting the importance of controlling for expiration in basis-spread tests. Finally, we construct a measure to proxy for market maturity and track these interactions throughout the course of the market's maturation.

Keywords: Arbitrage; Speculators; Basis risk; Liquidity; Informed trading; Market maturity (search for similar items in EconPapers)
JEL-codes: D53 G13 G14 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.iref.2014.09.003

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-05-02
Handle: RePEc:eee:reveco:v:35:y:2015:i:c:p:197-213