A market index futures contract and portfolio selection

This paper shows that if security returns are generated according to the market model and there is a futures market in the market index, then optimal portfolios can be selected in three steps: 1) select the optimal combination of firm unique characteristics; 2) select the optimal investment in the market; and 3) select the optimal investment in the risk-free asset. The futures market contract separates the choice of firm and market exposure and thus both simplifies the mathematics involved and increases the mean/variance efficiency of the optimal portfolio.     

The pricing of stock index futures spreads at contract expiration

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. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:451–469, 2002     

Complements or substitutes? Equivalent futures contract markets—the case of corn and soybean futures on U.S. and Japanese exchanges

This article examines the relationship between corn and soybean futures volumes for contracts traded in the United States and Japan. Because the contract specifications for corn and soybeans futures traded on the Chicago Board of Trade (CBOT), the Tokyo Grain Exchange (TGE), and the Kanmon Commodity Exchange (KCE) are highly similar, the existence of interactions might be expected. Previous research has identified price relationships between these similar contracts. With the advent of agricultural trading on the CBOT's Project A overnight electronic trading system, an overlap of trading times of the U.S. and Japanese exchanges for these commodity contracts resulted. An analysis of TGE and KCE corn and soybean futures volumes indicates that these contracts, rather than acting as substitutes, exhibit a complementary relationship. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:355–370, 2002