Arbitrage Opportunities in The Australian Share Price Index Futures Contract

John Bowers and Garry Twite
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John Bowers: Australian Graduate School of Management.
Garry Twite: Australian Graduate School of Management.

Australian Journal of Management, 1985, vol. 10, issue 2, 1-29

Abstract: This study examines the pricing behaviour of share price index futures contracts traded on the Australian market. Particularly, we investigate the relationship between futures prices and the no-arbitrage price predicted by the current spot prices. Consistent with similar studies of U.S. markets, we find that the observed share price index futures prices differ from those predicted by the no-arbitrage prices, but that the size and sign of this difference is not constant across the contracts or across the time period included in our sample. The explanations suggested in the literature for the existence of these price differences are predominantly institutional in nature. These include differential tax treatment, short selling constraints, thin trading and transaction costs. We find that these explanations do not appear to be capable of explaining the size or sign of the pricing differences we observe.

Keywords: SHARE PRICE INDEX FUTURES CONTRACT; FUTURES CONTRACT PRICING; ARBITRAGE OPPORTUNITIES; SHARE PRICE INDEX; FUTURES CONTRACTS (search for similar items in EconPapers)
Date: 1985
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:10:y:1985:i:2:p:1-29

DOI: 10.1177/031289628501000201

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