Behavioralize This! International Evidence on Autocorrelation Patterns of Stock Index and Futures Returns

Dong-Hyun Ahn, Jacob Boudoukh, Matthew Richardson and Robert F. Whitelaw

No 7214, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the relation between returns on stock indices and their corresponding futures contracts in order to evaluate potential explanations for the pervasive yet anomalous evidence of positive, short-horizon portfolio autocorrelations. Using a simple theoretical framework, we generate empirical implications for both microstructure and behavioral models. These implications are then tested using futures data on 24 contracts across 15 countries. The major findings are (I) return autocorrelations of indices tend to be positive even though their corresponding futures contracts have autocorrelations close to zero, (ii) these autocorrelation differences between spot and futures markets are maintained even under conditions favorable for spot-futures arbitrage, and (iii) these autocorrelation differences are most prevalent during low volume periods. These results point us towards a market microstructure-based explanation for short-horizon autocorrelations and away from explanations based on current popular behavioral models.

JEL-codes: G00 (search for similar items in EconPapers)
Date: 1999-07
New Economics Papers: this item is included in nep-ets and nep-fin
Note: AP
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Citations: View citations in EconPapers (1)

Published as Ahn, D. H., J. Boudoukh, M. Richardson and R. F. Whitelaw. "Partial Adjustment Or Stale Prices? Implications From Stock Index And Futures Return Autocorrelations," Review of Financial Studies, 2002, v15(2,Mar), 655-689.

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