A threshold error-correction model for intraday futures and index returns

Martin Martens, Paul Kofman and Ton Vorst ()
Additional contact information
Martin Martens: Department of Accounting and Finance, Lancaster University, Lancaster LA1 4YX, UK, Postal: Department of Accounting and Finance, Lancaster University, Lancaster LA1 4YX, UK
Paul Kofman: School of Banking and Finance, The University of New South Wales, Sydney, NSW 2052, Australia, Postal: School of Banking and Finance, The University of New South Wales, Sydney, NSW 2052, Australia

Journal of Applied Econometrics, 1998, vol. 13, issue 3, 245-263

Abstract: Index-futures arbitragers only enter into the market if the deviation from the arbitrage relation is sufficiently large to compensate for transaction costs and associated interest rate and dividend risks. We estimate the band around the theoretical futures price within which arbitrage is not profitable for most arbitragers, using a threshold autoregression model. Combining these thresholds with an error-correction model, we show that the impact of the mispricing error is increasing with the magnitude of that error and that the information effect of lagged futures returns on index returns is significantly larger when the mispricing error is negative. © 1998 John Wiley & Sons, Ltd.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
http://qed.econ.queensu.ca:80/jae/1998-v13.3/ Supporting data files and programs (text/html)

Related works:
Working Paper: A Threshold Error Correction Model for Intraday Futures and Index Returns (1995)
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:jae:japmet:v:13:y:1998:i:3:p:245-263

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().