On the Determinants of Basis Spread for Taiwan Index Futures and the Role of Speculators-Reference-Cited by-同舟云学术

On the Determinants of Basis Spread for Taiwan Index Futures and the Role of Speculators

Published:2014-03 Issue:01 Volume:17 Page:1450002
ISSN:0219-0915
Container-title:Review of Pacific Basin Financial Markets and Policies
language:en
Short-container-title:Rev. Pac. Basin Finan. Mark. Pol.

Author:

Chang Charles¹²,Lin Emily³⁴

Affiliation:

1. Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, Datong Plaza, 211 West Huaihai Road, Room 603, Shanghai, China 200030, China

2. Chinese University of Hong Kong, Shatin, NT, Hong Kong SAR, China

3. St. John's University, 499, Sec. 4, Tam King Road, Tamsui District, New Taipei City, 25135 Taiwan, R.O.C

4. Department of Management Science, National Chiao Tung University, 1001 University Road, Hsinchu, Taiwan 300, ROC

Abstract

This paper investigates basis spreads on index futures listed on the Taiwan Futures Exchange. We analyze the role of speculators and of informed trading in Taiwan's futures market using intraday data during the five-day pre-expiration period. We demonstrate that liquidity, volatility, and informed trading are each significantly positively related to spread magnitude, indicating that speculators may dominate arbitrageurs. While spreads have narrowed as the market has matured, liquidity and informed trading continue to widen spreads despite the fact that a naïve arbitrage strategy outperforms the market.

Publisher

World Scientific Pub Co Pte Lt

Subject

Economics and Econometrics,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219091514500027

Reference48 articles.

1. The Distribution of Realized Exchange Rate Volatility

2. The market for japanese stock index futures: Some preliminary evidence

3. Macroeconomic Influences and the Variability of the Commodity Futures Basis

4. Just How Much Do Individual Investors Lose by Trading?

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