Behavioralize this! International Evidence on Autocorrelation Patterns of Stock Index and Futures Returns

Posted: 12 Jul 2000 Last revised: 4 Apr 2022

See all articles by Dong-Hyun Ahn

Dong-Hyun Ahn

University of North Carolina at Chapel Hill

Jacob Boudoukh

Reichman University - Interdisciplinary Center (IDC) Herzliyah

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University

Robert Whitelaw

New York University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 1999

Abstract

This paper investigates the relation between returns on stock indices and their corresponding futures contracts in order to evaluate potential explanations for the pervasive yet anomalous evidence of positive, short-horizon portfolio autocorrelations. Using a simple theoretical framework, we generate empirical implications for both microstructure and behavioral models. These implications are then tested using futures data on 24 contracts across 15 countries. The major findings are (I) return autocorrelations of indices tend to be positive even though their corresponding futures contracts have autocorrelations close to zero, (ii) these autocorrelation differences between spot and futures markets are maintained even under conditions favorable for spot-futures arbitrage, and (iii) these autocorrelation differences are most prevalent during low volume periods. These results point us towards a market microstructure-based explanation for short-horizon autocorrelations and away from explanations based on current popular behavioral models.

Suggested Citation

Ahn, Dong-Hyun and Boudoukh, Jacob and Richardson, Matthew P. and Whitelaw, Robert F., Behavioralize this! International Evidence on Autocorrelation Patterns of Stock Index and Futures Returns (July 1999). NBER Working Paper No. w7214, Available at SSRN: https://ssrn.com/abstract=227558

Dong-Hyun Ahn (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3203 (Phone)
919-962-2068 (Fax)

Jacob Boudoukh

Reichman University - Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 4610101
Israel

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University ( email )

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Robert F. Whitelaw

New York University ( email )

Stern School of Business
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212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

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