Mean Reversion and Basis Dynamics

Michael Theobald and Peter Yallup

Journal of Futures Markets, 2001, vol. 21, issue 9, 797-818

Abstract: An analytical relationship between basis change autocorrelations and thin trading effects together with partial adjustment factors is developed. Less than full price adjustments are demonstrated to lead to negative autocorrelations in basis innovation series in addition to those induced by thin trading effects. Numerical and empirical analyses explore the interrelationships between these effects and provide evidence for the presence of both effects in intradaily cash and futures data. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21: 797–818, 2001

Date: 2001
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