Showing papers in "Journal of Futures Markets in 1995"

Hedging short‐term interest risk under time‐varying distributions

Abstract: We investigate the performance of conditional hedging strategies in the context of banker's acceptance positions. This strategy is based on the GARCH methodology developed by Engle (1982) and Bollerslev (1986), and incorporates information contained in past return innovations as well as past conditional variances. We extend previous research byallowing asymmetries in the volatility response to positive shocks and to negative shocks in the construction of our hedged positions, and by relaxing the constant conditional correlation assumption imposed by previous researchers. Our evidence not only supports earlier findings suggesting that the conditional hedging strategy outperforms the constant hedge model, both statistically and economically, but also shows that even greater risk reduction may be achieved by accounting for asymmetries in the spot-futures joint dynamics. Our results also indicate that the constant hedging model is superior to the widely based duration-based approach. This study represents the first investigation of the Montreal Exchange's BA futures contract (BAX).

Dax index futures: Mispricing and arbitrage in German markets

Abstract: The paper reports the results of an empirical study of the price relation between the German Performance Stock Index, DAX, and DAX futures. An ex-ante arbitrage strategy based on arbitrage signals is analyzed. The data set contains intraday bidand ask futures quotes and index values on a minute by minute basis. It is found that the number and persistence of arbitrage opportunities differs considerably for futures nearest to deliver as compared to futures which are not nearest to deliver. The findings suggest that arbitrageurs trade mainly in futures nearest to deliver. The risk associated with arbitrage trading is found to be very small so that arbitrage profits are nearly risk free.

New Trading Practices and Short-Run Market Efficiency

Abstract: We document a large decrease in autocorrelation and increase in variance of recent short-run returns on several broad stock market indexes, over the 1983-89 period, 15-minute returns went from being highly positively serially correlated to practically uncorrelated. Over the past twenty years, daily and weekly autocorrelations have also fallen, we use transactions data to decompose short-run index autocorrelation into three components: bid-ask bounce, nontrading effects, and noncomtemporaneous cross-stock correlations in specialists' quotes. The first two factors do not explain the autocorrelation's decline. We argue that new trading practices have improved the processing of market-wide information, and that the recent decreases in autocorrelation and increases in volatility simply reflect these improvements.