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Mini Index Futures: Information Impacts, Relative Pricing, and Arbitrage Opportunities in the Least Frictional Markets

Journal of Financial Studies

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Title Mini Index Futures: Information Impacts, Relative Pricing, and Arbitrage Opportunities in the Least Frictional Markets
 
Creator Yun-Yung Lin
Wen-liang G. Hsieh
 
Description This paper examines the pricing relationship between the mini index futures and the regular-sized counterpart traded on TAIFEX. The mini-regular arbitraging is free from many trading impediments, providing an opportunity to investigate the arbitrage activities in an almost frictionless environment. The mini-regular pricing is highly efficient as evident by the small ex-post mispricing and unpromising ex-ante arbitrage profits. The W-shaped intraday pattern of price deviation suggests that arbitrage opportunities tend to concentrate in periods (futures opening and spot opening) of intensive information impacts. Regression results show that information relevant variables including futures volatility, volume, and open interest are significantly linked to the mini-regular price deviations. Furthermore, we find that the TX-MTX pricing efficiency is improved as the originally lagged mini contract enhances its price discovery so that the two markets respond to information impacts in a synchronous manner.
Key words: Index futures; Mini contract; Pricing Efficiency; Arbitrage; Taiwan.
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-07-06
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011230
 
Source Journal of Financial Studies; Vol 15, No 1 (2007); 103
財務金èžå­¸åˆŠ; Vol 15, No 1 (2007); 103
 
Language —