Mean Reversion in Stock Index Futures Markets: A Nonlinear Analysis

Journal of Futures Markets

Volumn 22, Issue 4, 2002, Pages 285-314

  Monoyios, Michael ^a   Sarno, Lucio ^b  

^a BRUNEL UNIVERSITY   (United Kingdom)

^b UNIVERSITY OF WARWICK   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0036116578     PISSN: 02707314     EISSN: None     Source Type: Journal    
DOI: 10.1002/fut.10008     Document Type: Review

References (60)

1. Blank, S. C. (1991). "Chaos" in futures markets? A nonlinear dynamical analysis. Journal of Futures Markets, 11, 711-728.
2. Brennan, M. J., & Schwartz, E. S. (1990), Arbitrage in stock index futures. Journal of Business, 63, 7-31.
3. Brenner, R. J., & Kroner, K. F. (1995). Arbitrage, cointegration, and testing the unbiasedness hypothesis in financial markets. Journal of Financial and Quantitative Analysis, 30, 23-42.
4. Chan, K. (1992). A further analysis of the lead-lag relationship between the cash market and stock index futures market. Review of Financial Studies, 5, 123-152.
5. Dubofsky, D. A. ( 1992). Options and financial futures: Valuation and uses. New York: McGraw Hill.
6. Dumas, B. (1992). Dynamic equilibrium and the real exchange rate in spatially separated world. Review of Financial Studies, 5, 153-180.
7. Dumas, B. (1994). Partial equilibrium versus general equilibrium models of the international capital market. In F. Van Der Ploeg (Ed.), The handbook of international macroeconomics (Chapter 10). Oxford: Blackwell.
8. Dwyer, G. P., Locke, P., & Yu, W. (1996). Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash. Review of Financial Studies, 9, 301-332.
9. Eitrheim, O., & Teräsvirta, T. (1996). Testing the adequacy of smooth transition autoregressive models. Journal of Econometrics, 74, 59-75.
10. Engle, R. F. (1982). Autoregressive conditional heteroskedasticity with estimates of the variance of the United Kingdom inflation, Econometrica, 55, 987-1007.
11. Figlewski, S. (1984). Hedging performance and basis risk in stock index futures. Journal of Finance, 39, 657-669.
12. Fujihara, R. A., & Mougoue, M. (1997a). Linear dependence, nonlinear dependence and petroleum futures market efficiency. Journal of Futures Markets, 17, 75-99.
13. Fujihara, R. A., & Mougoue, M. (1997b). An examination of linear and nonlinear causal relationships between price variability and volume in petroleum futures markets. Journal of Futures Markets, 17, 385-416.
14. Fuller, W. A. (1976). Introduction to statistical time series. New York: Wiley & Sons.
15. Gallant, A. R., Rossi, P. E., & Tauchen, G. (1993). Nonlinear dynamic structures. Econometrica, 61, 871-908.
16. Gao, A. H., & Wang, G. H. K. (1999). Modeling nonlinear dynamics of daily futures price changes. Journal of Futures Markets, 19, 325-351.
17. Garbade, K. D., & Silber, W. L. (1983). Price movements and price discovery in futures and cash markets. Review of Economics and Statistics, 65, 289-297.
18. Granger, C. W. J., & Lee, T. H. (1999). The effect of aggregation on nonlinearity. Econometric Reviews, 18, 259-269.
19. Granger, C. W. J., & Teräsvirta, T. (1993). Modelling nonlinear economic relationships. Oxford: Oxford University Press.
20. Hamilton, J. D. (1994). Time series analysis. Princeton, NJ: Princeton University Press.
21. Hansen, B. E. (1997), Inference in TAR models. Studies in Nonlinear Dynamics and Econometrics, 2, 1-14.
22. Jansen, E. S., & Teräsvirta, T. (1996). Testing parameter constancy and super exogeneity in econometric equations. Oxford Bulletin of Economics and Statistics, 58, 735-763.
23. Jarque, C. M., & Bera, A. (1987). Efficient tests for normality, heteroscedasticity and serial independence of regression residuals. Economics Letters, 6, 255-259.
24. Johansen, S. (1988). Statistical analysis of cointegrating vectors. Journal of Economic Dynamics and Control, 12, 231-254.
25. Johansen, S. (1991). Estimation and hypothesis testing of cointegrating vectors in Gaussian vector autoregressive models. Econometrica, 59, 1551-1580.
26. Johansen, S. (1995). Likelihood-based inference in cointegrated VAR models. Oxford: Oxford University Press.
27. Karatzas, I., & Shreve, S. E. (1998). Methods of mathematical finance. New York: Springer.
28. Kawaller, I. G. (1991). Determining the relevant fair value(s) of S&P 500 futures: A case study approach. Journal of Futures Markets, 11, 453-460.
29. Kawaller, I. G., Koch, P. D., & Koch, T.-W. (1987). The temporal price relationship between S&P 500 futures and the S and P 500 Index. Journal of Finance, 42, 1309-1329.
30. Klemkosky, R. C., & Lee, J.-H. (1991). The intraday ex post and ex ante profitability of index arbitrage. Journal of Futures Markets, 11, 291-311.
31. Koop, G., Pesaran, M. H., & Potter, S. (1996). Impulse response analysis in nonlinear multivariate models. Journal of Econometrics, 74, 119-147.
32. Lekkos, I., & Milas, C. (2001). The predictability of excess returns on UK bonds: A non-linear approach. Bank of England and University of Sheffield, Discussion Paper.
33. Liu, J., & Longstaff, F. A. (2000). Losing money in arbitrage. Review of Financial Studies, forthcoming.
34. Lo, A. W., & MacKinlay, A. C. (1999). A non-random walk down Wall Street. Princeton, NJ: Princeton University Press.
35. Luukkonen, R., Saikkonen, P., & Teräsvirta, T. (1988). Testing linearity against smooth transition autoregressive models. Biometrika, 75, 491-499.
36. MacKinlay, A. C., & Ramaswamy, K. (1988). Index-futures arbitrage and the behavior of stock index futures prices. Review of Financial Studies, 1, 137-158.
37. MacKinnon, J. (1991). Critical values For cointegration tests. In R. F. Engle & C. W. J. Granger (Eds.), Long-run economic relationships (pp. 267-276). Oxford: Oxford University Press.
38. Martens, M., Kofman, P., & Vorst, T. C. F. (1998). A threshold error- correction model for intraday futures and index returns. Journal of Applied Econometrics, 13, 245-263.
39. Michael, P., Nobay, A. R., & Peel, D. A. (1997). Transactions costs and non-linear adjustment in real exchange rates: An empirical investigation. Journal of Political Economy, 105, 862-879.
40. Miller, M. H., Muthuswamy, J., & Whaley, R. E. (1994). Mean reversion of Standard & Poor's 500 Index basis changes: Arbitrage-induced or statistical illusion? Journal of Finance, 49, 479-513.
41. Modest, D. M., & Sundaresan, M. (1983). The relationship between spot and futures prices in stock index futures markets: Some preliminary evidence. Journal of Futures Markets, 3, 15-41.
42. Neal, R. (1996). Direct tests of index arbitrage models. Journal of Financial and Quantitative Analysis, 31, 541-562.
43. Osterwald-Lenum, M. (1992). A note with quantiles of the asymptotic distribution of the maximum likelihood cointegration rank test statistics. Oxford Bulletin of Economics and Statistics, 54, 461-472.
44. Parhizgari, A. M., & de Boyrie, M. E. (1997). Predicting spot exchange rates in a nonlinear estimation framework using futures prices. Journal of Futures Markets, 17, 935-956.
45. Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335-346.
46. Ramsey, J. B. (1969). Tests for specification errors in classical least-squares regression analysis. Journal of the Royal Statistical Analysis, Series B, 31, 350-371.
47. Sarno, L., & Valente, G. (2000). The cost of carry model and regime shifts in stock index futures markets: An empirical investigation. Journal of Futures Markets, 20, 603-624.
48. Schwartz, E. S. (1997). The stochastic behavior of commodity prices: Implications for valuation and hedging. Journal of Finance, 52, 923-973.
49. Shiller, R. J., & Perron, P. (1985). Testing the random walk hypothesis: Power versus frequency of observation. Economics Letters, 18, 381-386.
50. Skalin, J. (1998). Testing linearity against smooth transition autoregression using a parametric bootstrap. Department of Economic Statistics, Stockholm School of Economics, Working Paper Series in Economics and Finance No. 276.
51. Sofianos, G. (1993). Index arbitrage profitability. Journal of Derivatives, 1, 6-20.
52. Stoll, H. R., & Whaley, R. E. (1990). The dynamics of stock index and stock index futures returns. Journal of Financial and Quantitative Analysis 25, 441-468.
53. Taylor, N., van Dijk, D., Franses, P. H., & Lucas, A. (2000). SETS, arbitrage activity, and stock price dynamics. Journal of Banking and Finance, 24, 1289-1306.
54. Teräsvirta, T. (1994). Specification, estimation and evaluation of smooth transition autoregressive models. Journal of the American Statistical Association, 89, 208-218.
55. Teräsvirta, T. (1998). Modelling economic relationships with smooth transition regressions. In D. E. A. Giles & A. Ullah (Eds.), Handbook of applied economic statistics (pp. 502-552). New York: Marcel Dekker.
56. Tjostheim, D. (1986). Estimation in nonlinear time series models. Stochastic Processes and Their Applications, 21, 251-273.
57. Tong, H. (1990). Nonlinear time series: A dynamical system approach. Oxford: Clarendon Press.
58. Yadav, P. K., Pope, P. F., & Paudyal, K. (1994). Threshold autoregressive modeling in finance: The price differences of equivalent assets, Mathematical Finance, 4, 205-221.
59. Yang, S. R., & Brorsen, B. W. (1993). Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos? Journal of Futures Markets, 13, 175-191.
60. Yang, S. R., & Brorsen, B. W. (1994), Daily futures price changes and nonlinear dynamics. Structural Change and Economic Dynamics, 5, 111-132.