The International Transmission of Arbitrage Information Across Futures Markets

Abstract:   This paper examines whether deviations from a domestic spot‐futures relation, as identified through mispricing series in stock index futures, spillover international boundaries. Such spillovers suggest that information from a mispricing series in one market conveys a signal of similar mispricing in another market. In the presence of arbitrage traders and in the absence of market frictions, mispricing series should be independent across international boundaries. The study employs a VAR analysis of stock index futures mispricing across three large futures markets – Australia, the UK and the USA. Using time zone differences, tests are conducted for the daily transmission of arbitrage information. The results reveal the relationship between mispricing series is bi‐directional. Based on this finding, a trading strategy is employed to examine the economic significance of apparent profits. The results show that some profits are possible after transaction costs but that a long horizon, probably beyond the scope of most traders, is required to exploit the spillover information.     

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The specification of GARCH models with stochastic covariates

A number of studies investigate whether various stochastic variables explain changes in return volatility by specifying the variables as covariates in a GARCH(1, 1) or EGARCH(1, 1) model. The authors show that these models impose an implicit constraint that can obscure the true role of the covariates in the analysis. They illustrate the problem by reconsidering the role of contemporaneous trading volume in explaining ARCH effects in daily stock returns. Once the constraint imposed in earlier research is relaxed, it is found that specifying volume as a covariate does little to diminish the importance of lagged squared returns in capturing the dynamics of volatility. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:911–934, 2008     

THE COLLECTED WORKS OF ARTHUR SELDON1

This article discusses the achievements of Arthur Seldon as Editorial Director of the IEA in the context of the recently published Collected Works of Arthur Seldon.     

Low price guarantees as signals of lowest price: The moderating role of perceived price dispersion

This article presents two experimental studies examining the effects of a low price guarantee on consumers’ pre-purchase evaluations and behavioral intentions. The authors first examine how the effects of a low price guarantee are moderated by consumer perception of market price dispersion. The results show that low price guarantee effects are likely to be attenuated when consumers perceive market price dispersion for a product to be high. The second study shows that higher levels of penalty can help restore a low price guarantee's effectiveness. Specifically, a low price guarantee with progressively higher levels of penalty leads to incrementally more favorable effects on key consumer outcomes when perceived price dispersion is high. Interestingly, penalty level has no such incremental benefit in case of low perceived price dispersion. Theoretical and managerial implications of the authors’ findings, the limitations of the studies, and future research opportunities are discussed.     

Hedging Pressure Effects in Futures Markets

We present a simple model implying that futures risk premia depend on both own-market and cross-market hedging pressures. Empirical evidence from 20 futures markets, divided into four groups (financial, agricultural, mineral, and currency) indicates that, after controlling for systematic risk, both the futures own hedging pressure and cross-hedging pressures from within the group significantly affect futures returns. These effects remain significant after controlling for a measure of price pressure. Finally, we show that hedging pressure also contains explanatory power for returns on the underlying asset, as predicted by the model.     

Do CRA‐Related Events Affect Shareholder Wealth? The Case of Bank Mergers

This study explores how Community Reinvestment Act (CRA) protests and their resolution affect the market value of merging banks. We find, in contrast to earlier research, that CRA‐related events are not associated with significant negative market reactions for either bidder or target institutions. Rather, the market does not seem to respond strongly to CRA‐related events at all. The results appear to stem from the choice of an estimation period for establishing an institution's baseline stock‐market price dynamics that does not include abnormal security price movements induced by the merger announcement.     

Analyzing moviegoing demand: an individual‐level cross‐sectional approach

Previous work analyzing the demand for movie theater visits have had to rely entirely on highly aggregate time series data. Inevitably, this masks the significance of individual‐specific effects that place constraints on such trip making. Further, while there have been cross‐sectional revenue model estimates at the film‐level, there have not been, hitherto, any cross‐sectional studies of moviegoing by individuals. This study thus presents the first detailed microeconometric analysis of the factors that increase or lower the probability that an individual will go to a movie theater. Copyright © 2005 John Wiley & Sons, Ltd.