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Durham e-Theses
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Issues in stock index futures trading: evidence for the FTSE-100 and FTSE-mid 250 contacts

Butterworth, Darren David (1998) Issues in stock index futures trading: evidence for the FTSE-100 and FTSE-mid 250 contacts. Doctoral thesis, Durham University.



This thesis provides a detailed empirical evaluation of the role and function of the FTSE 100 and FTSE Mid 250 index futures contracts, by considering the interrelated issues of hedging effectiveness and pricing efficiency. The aims of the thesis are outlined in chapter one, with chapter two providing a detailed review of the empirical literature relevant to this study. Chapter three investigates the hedging effectiveness of the FTSE 100 and FTSE Mid 250 index futures contracts in both an ex post and ex ante context. Despite relatively thin trading volume, the FTSE Mid 250 contract is shown to be an important hedging instrument. However, the results demonstrate the hedging effectiveness can only truly be examined by using an ex ante strategy in conjunction with spot portfolios that do not replicate market portfolios. Work into hedging effectiveness is further examined in chapter four using hedge ratios generated within the Extended Mean Gini framework. The results indicate that for both contracts the hedge ratio series are characterised by a step function which is strongly related to the hedger's degree of risk aversion. Chapter five examines the pricing efficiency of the FTSE 100 and Mid 250 contracts. While there were many deviations from fair value, both contracts appear to be quite efficiently priced, with opportunity for index arbitrage rare. Research into the economics of arbitrage is extended in chapter six by investigating the potential for intramarket and intermarket spread trading. While the intramarket spread is found to be very efficiently priced, trading well within its no-arbitrage limits, the intermarket is much less efficiently priced frequently violating its no-arbitrage limits. Chapter seven, provides a summary of the thesis and concluding remarks concerning the relevance of the issues investigated are drawn.

Item Type:Thesis (Doctoral)
Award:Doctor of Philosophy
Thesis Date:1998
Copyright:Copyright of this thesis is held by the author
Deposited On:09 Oct 2012 11:42

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