Examining the forward pricing function of the Australian equity index futures contract

Irena Ivanovic; Peter Howley

doi:10.1111/j.1467-629x.2004.00101.x

Examining the forward pricing function of the Australian equity index futures contract

Irena Ivanovic^*, Peter Howley

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

The relationship between the Australian equity index futures and spot prices is examined. Tests indicate that futures prices with one, two and three months to maturity are unbiased predictors of the spot and hence provide an efficient hedging mechanism for Australian equity index market participants, while six-, nine-and twelve-month futures prices are biased predictors of spot prices, indicating that speculative opportunities may exist in futures contracts for these time spreads. An analysis of the short-run dynamic properties of the long-run equilibrium relationship found that for all time spreads the futures prices respond to changes in the long-run equilibrium, and for the twelve-month contract, both futures and spot prices adjust to return to the long-run equilibrium.

Original language	English
Pages (from-to)	57-73
Number of pages	17
Journal	Accounting and Finance
Volume	44
Issue number	1
DOIs	https://doi.org/10.1111/j.1467-629x.2004.00101.x
Publication status	Published - Mar 2004
Externally published	Yes

Keywords

Australian equity index futures
Cointegration
Forward pricing function
Unbiased expectations hypothesis

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10.1111/j.1467-629x.2004.00101.x

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AB - The relationship between the Australian equity index futures and spot prices is examined. Tests indicate that futures prices with one, two and three months to maturity are unbiased predictors of the spot and hence provide an efficient hedging mechanism for Australian equity index market participants, while six-, nine-and twelve-month futures prices are biased predictors of spot prices, indicating that speculative opportunities may exist in futures contracts for these time spreads. An analysis of the short-run dynamic properties of the long-run equilibrium relationship found that for all time spreads the futures prices respond to changes in the long-run equilibrium, and for the twelve-month contract, both futures and spot prices adjust to return to the long-run equilibrium.

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Examining the forward pricing function of the Australian equity index futures contract

Abstract

Keywords

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