Convergence to Efficiency in FTSE-100 Futures Market

32 Pages Posted: 25 Jan 2011

See all articles by Ju Xiang

Ju Xiang

Central University of Finance and Economics (CUFE)

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Date Written: December 24, 2010

Abstract

We conduct efficiency test using the conventional method in Chordia, Roll, and Subrahmanyam (2005) and the wavelet analysis. For the FTSE-100 futures data from January 2001 through December 2004, both approaches identify that, conditional on order imbalance, it takes about 10 minutes for the market to converge to efficiency, which is shorter than the 30-minute required for large US stocks. Similar to the stock market case, the conventional method produces a longer-moment puzzle that short-term (10-minute) unpredictability cannot prevent a longer-term (30-minute) return momentum. This puzzle is resolved when the wavelet analysis is applied.

Keywords: EMH, FTSE, effeciency, futures market, puzzle, wavelet

JEL Classification: G11, G12, G14

Suggested Citation

Xiang, Ju and Lien, Donald, Convergence to Efficiency in FTSE-100 Futures Market (December 24, 2010). Available at SSRN: https://ssrn.com/abstract=1747311 or http://dx.doi.org/10.2139/ssrn.1747311

Ju Xiang (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

Beijing, Beijing
China

Donald Lien

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

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