The Valuation of Equity Futures on the Tokyo Stock Exchange: 1920–1923 |
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| Authors: | Toby Daglish Lyndon Moore |
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| Affiliation: | 1. Toby Daglish is at the New Zealand Institute for the Study of Competition and Regulation and Victoria University of Wellington, , New Zealand;2. Lyndon Moore is at The University of Melbourne, , Victoria, Australia |
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| Abstract: | The futures price of an asset should depend on the spot price of that asset, the interest rate, cash flows during the contract term, the convenience yield, and storage costs. Despite many tests of the spot–future relation for commodities in historical periods, there have been no tests of this historical relation for equities. We price single‐stock equity futures on the Tokyo Stock Exchange between 1920 and 1923 and find that mispricing is considerably worse than in contemporary U.S. markets, after adjusting for (unavoidable) asynchronous data issues. The main cause of the mispricing is short‐sales constraints, rather than investor naivety. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark |
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