The Pricing of Stock Index Futures Spreads at Contract Expiration

Alex Frino*, Michael D. McKenzie

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

20 Citations (Scopus)

Abstract

This paper conducts an empirical analysis of the mispricing of calendar spreads for stock index futures. Using recent data drawn from the Sydney Futures Exchange, a sharp increase in the magnitude of spread mispricing immediately prior to maturity of the near contract is documented. This pattern in mispricing is related to a sharp decline in open interest in the near contract and an increase in open interest in the deferred contract. Further, the direction of mispricing of the near and deferred contracts are more likely to move in opposite directions as the near contract approaches maturity. These findings are consistent with the hypothesis that traders seeking to roll-over their positions from near to deferred futures contracts close to maturity increase the magnitude of spread mispricing.

Original languageEnglish
Pages (from-to)451-469
Number of pages19
JournalThe Journal of Futures Markets
Volume22
Issue number5
DOIs
Publication statusPublished - May 2002

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