Index Arbitrage and Futures Pricing Efficiency: Evidence from Thailand

37 Pages Posted: 23 Aug 2011 Last revised: 15 Dec 2011

See all articles by Sachapon Tungsong

Sachapon Tungsong

Thammasat University - Thammasat Business School

Gun Srijuntongsiri

Sirindhorn International Institute of Technology, Thammasat University

Date Written: August 23, 2011

Abstract

Using both daily and intraday data, this research examines the contribution of the exchange-traded fund TDEX to pricing efficiency of the SET50 futures with respect to the SET50 index. In order to analyze the efficiency of the SET50 futures price, frequencies of mispricing and arbitrage as well as arbitrage profitability are measured. In particular, the following three arbitrage trades are analyzed: (1) SET50 futures vs. TDEX, (2) SET50 futures vs. SET50 component stocks, and (3) TDEX vs. SET50 component stocks. Empirical evidence indicates that the introduction of TDEX does not contribute to pricing efficiency of SET50 futures with respect to the cash index.

Keywords: Index arbitrage, Liquidity, Exchange-traded fund, Index futures, Stock Exchange of Thailand

JEL Classification: G12, G13, G14

Suggested Citation

Tungsong, Sachapon and Srijuntongsiri, Gun, Index Arbitrage and Futures Pricing Efficiency: Evidence from Thailand (August 23, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1915282 or http://dx.doi.org/10.2139/ssrn.1915282

Sachapon Tungsong (Contact Author)

Thammasat University - Thammasat Business School ( email )

2 Prachan Road
Pra Nakorn
Bangkok, Bangkok 10200
Thailand

Gun Srijuntongsiri

Sirindhorn International Institute of Technology, Thammasat University ( email )

Thailand

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