A Threshold Error Correction Model for Intraday Futures and Index Returns

Martin Martens, Paul Kofman and Ton C. F. Vorst

No 267767, Department of Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: Index-futures arbitragers only enter into the market if the deviation from the arbitrage relation is large enough 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 can make a distinction between the effects of arbitragers and infrequent trading on index and futures returns.

Keywords: Research and Development/Tech Change/Emerging Technologies; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 34
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/267767/files/monash-203.pdf (application/pdf)
https://ageconsearch.umn.edu/record/267767/files/monash-203.pdf?subformat=pdfa (application/pdf)

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:ags:monebs:267767

DOI: 10.22004/ag.econ.267767

Access Statistics for this paper

More papers in Department of Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().