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Efficiency in the Pricing of the FTSE 100 Futures Contract

Efficiency in the Pricing of the FTSE 100 Futures Contract This paper studies the pricing efficiency in the FTSE 100 futures contract by linking the predictable movements in futures returns to the time‐varying risk and risk premia associated with prespecified factors. The results indicate that the predictability of the FTSE 100 futures returns is consistent with a conditional multifactor model with time‐varying moments. The dynamics of the factor risk premia, combined with the variation in the betas, capture most of the predictable variance of returns, leaving little variation to be explained in terms of market inefficiency. Hence the predictive power of the instruments does not justify a rejection of market efficiency. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Financial Management Wiley

Efficiency in the Pricing of the FTSE 100 Futures Contract

European Financial Management , Volume 7 (1) – Mar 1, 2001

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Publisher
Wiley
Copyright
Blackwell Publishers Ltd 2001
ISSN
1354-7798
eISSN
1468-036X
DOI
10.1111/1468-036X.00142
Publisher site
See Article on Publisher Site

Abstract

This paper studies the pricing efficiency in the FTSE 100 futures contract by linking the predictable movements in futures returns to the time‐varying risk and risk premia associated with prespecified factors. The results indicate that the predictability of the FTSE 100 futures returns is consistent with a conditional multifactor model with time‐varying moments. The dynamics of the factor risk premia, combined with the variation in the betas, capture most of the predictable variance of returns, leaving little variation to be explained in terms of market inefficiency. Hence the predictive power of the instruments does not justify a rejection of market efficiency.

Journal

European Financial ManagementWiley

Published: Mar 1, 2001

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