Stock index futures arbitrage in the Japanese markets

https://doi.org/10.1016/0922-1425(89)90005-4Get rights and content

Abstract

This study examines the behavior of the prices of the first two futures contracts on Japanese stock price indices to be traded, the Nikkei Stock Average (NSA) contract on the Singapore International Monetary Exchange (SIMEX), and the Osaka Stock Futures 50 (OSF50) contract on the Osaka Securities Exchange (OSE). We find significant departures between the actual prices of the contracts and their ‘fair’ prices in the early months of trading from June 1987 to June 1988. The NSA contract was dominated by discounts of the actual prices in relation to the ‘fair’ price while the OSF50 contract was characterized by both premiums and discounts during this period. This suggests the viability of ‘cross-spreading’ strategies which were analyzed and found to be profitable during much of the period under study.

References (7)

  • R.S. Billingsley et al.

    The pricing and performance of stock index futures spreads

    Journal of Futures Markets

    (1988)
  • M.J. Brennan et al.

    Arbitrage in stock index futures

    (1988)
  • M. Brenner et al.

    The behavior of prices in the Nikkei spot and futures markets

    Journal of Financial Economics

    (1989)
There are more references available in the full text version of this article.

Cited by (13)

  • Stock index futures arbitrage: Evidence from a meta-analysis

    2019, International Review of Financial Analysis
    Citation Excerpt :

    In the case of European markets, Yadav and Pope (1990) report mispricing in U.K., Bühler and Kempf (1995) for the German market, Stulz, Wasserfallen, and Stucki (1990) for the Swiss market, Puttonen (1993) for the Finnish market, Bialkowski and Jakubowski (2008) and Marcinkiewicz (2016) for the Polish market, Andreou and Pierides (2008) and Fassas (2011) for the Greek market and Berglund and Kabir (2003) for the Dutch market. In the case of Asian markets, there is evidence of mispricing in the Japanese market (Brenner, Subrahmanyam, & Uno, 1989a, 1989b; Chung, Kang, & Rhee, 2003; Lim, 1992), in the Hong Kong market (Fung & Draper, 1999; Fung & Lam, 2004), in the Taiwanese market (Lin, Lee, & Wang, 2013; Wang, 2010) and in the Indian market (Vipul, 2005). The research findings on the existence of mispricing, profitability of mispricing and factors affecting the level of mispricing are inconclusive.

  • Program Trading and Stock Index Arbitrage

    1995, Handbooks in Operations Research and Management Science
View all citing articles on Scopus

We thank S. Sundaresan, W. Ziemba and an anonymous referee for helpful comments. We are grateful to Nihon Keizai Shimbun Inc. for providing us with the data for the study.

View full text