Stability of the S&P 500 futures market efficiency conditions

William Crowder and Chanwit Phengpis

Applied Financial Economics, 2005, vol. 15, issue 12, 855-866

Abstract: Brenner and Kroner (1995) laid out the necessary conditions for futures market efficiency when the asset price data are characterized by stochastic trends. Specifically, a no arbitrage profit condition implies that spot, futures and cost-of-carry will be cointegrated, unless the cost-of-carry is stationary, in which case spot and futures will be cointegrated. This is examined for the S&P 500 futures market. The results are intriguing since evidence is initially found that spot and futures are themselves cointegrated. But a deeper analysis demonstrates that this cointegrating relationship is not stable. However, including the three-month Treasury bill rate as a proxy for the cost-of-carry yields one stable cointegrating (or equilibrium) relationship. This suggests that the evidence of cointegration between spot and futures alone is spurious and that researchers need to be careful about conclusions drawn from cointegration analysis of market efficiency conditions.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100500077193 (text/html)
Access to full text is restricted to subscribers.

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:taf:apfiec:v:15:y:2005:i:12:p:855-866

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603100500077193

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().