An Empirical Study of Basis Arbitrage on Stock Index Futures

• Main Authors: Liu Jun-min, 柳竣閔
• Other Authors: Lin Tsang-shyang
• Format: Others
• Language: zh-TW
• Published: 1998
• Online Access: http://ndltd.ncl.edu.tw/handle/97987706479794885820

碩士 === 銘傳大學 === 財務金融學系 === 86 === Most of previous empirical studies of index futures arbitrage emphasized on "cost-of carry model", which serves futures mispricing as a principle of arbitrage . Generally, theoretical futures prices should be higher than spot prices, and there are more opportunities of cash and carry arbitrage than those of reverse cash and carry arbitrage. We need a definite trading strategy for arbitrage. For empirical study, Hang Seng index futures traded on Hong Kong Futures Exchange (HKFE) is selected. Under consideration of all exposures and hypothetical costs, the frequency of basis arbitrage, profitability and offsetting strategies are analyzed. This article constructs an arbitrage-free interval according to exposures and limits of actual transaction. When actual basis is below the lower boundary of arbitrage-free interval, we can take "cash and carry arbitrage" strategy; on the other hand, we acn take "reverse cash and carry arbitrage" strategy. For empirical study, there are following findings: 1.There are exactly opportunities for basis arbitrage, including "cash and carry " and "reverse cash and carry " arbitrage. 2.Arbitrageurs can offset their positions by early-unwindings and roll-overs to promote performance. 3.Under hypothetical costs, the average profitability is about HK$4,400~HK$5,500 (per contract).