Previous papers documenting the relationship between returns on stock index futures and stock indices typically ignore dividends1. This appears to leave open the issue of whether the return on a synthetic position constructed using stock index futures and a risk free asset efficiently delivers the value of dividends. This paper proves mathematically that the returns on synthetic positions using such contracts should deliver capital gains, cash dividends and the value of franking credits derived by arbitrageurs. Empirical evidence consistent with this proposition is provided, using a sample of data for the SPI 200 contract trading on the Sydney Futures Exchange. Interestingly, the evidence suggests that franking credits are priced into stock index futures contracts, despite the introduction of the 45-day rule which seemingly would appear to prevent this.
|Number of pages||6|
|Journal||Journal of law and financial management|
|Publication status||Published - 2004|
Bibliographical notePublisher version archived with the permission of the publisher Macquarie Graduate School of Management, Macquarie University, NSW, Australia. This archived copy is available for individual, non-commercial use. Permission to use this version for other uses must be obtained from the publisher.
- synthetic portfolios
- stock index futures
- franking credits