Efficiency of the IBEX Spot-Futures Basis: THe Impact of the Mini-Futures

David Gordon McMillan, R Quiroga Garcia

    Research output: Contribution to journalArticlepeer-review

    5 Citations (Scopus)

    Abstract

    This paper considers whether the introduction of the mini-futures contract for the Spanish Ibex index affects overall market efficiency. Using linear, non-linear, and fractional integration modeling techniques for the basis term, results of this study suggest the following salient points. First, the equilibrium speed of adjustment is reduced after the introduction of the mini-futures contract. This effect is particularly pronounced in the mini-futures second year when its contracts are more heavily traded. Second, fractional integration tests support longer memory in the basis term after the contract introduction, again particularly in the second year. Third, the relationship between the full-size and mini-futures contracts appears highly efficient, with a quick speed of adjustment and short memory. Finally, an examination of the volatility dynamics suggests that in the second year of the mini-futures contract shocks to spot return volatility exhibit longer memory. The results reported here suggest that the increased use of the mini-futures contract after its introduction has had a detrimental impact on price discovery. (C) 2008 Wiley Periodicals, Inc.

    Original languageEnglish
    Pages (from-to)398-415
    Number of pages18
    JournalJournal of Futures Markets
    Volume28
    DOIs
    Publication statusPublished - Apr 2008

    Keywords

    • STOCK INDEX FUTURES
    • MISLEADING LINEAR PROPERTIES
    • NONLINEAR TIME-SERIES
    • ERROR-CORRECTION
    • FORECASTING VOLATILITY
    • RETURN VOLATILITY
    • PRICE VOLATILITY
    • ARBITRAGE
    • MARKET
    • DYNAMICS

    Fingerprint

    Dive into the research topics of 'Efficiency of the IBEX Spot-Futures Basis: THe Impact of the Mini-Futures'. Together they form a unique fingerprint.

    Cite this