Rolling Over Equity Futures: A Study in Four Countries
NYU Tandon School of Engineering, Dept. of Finance and Risk Engineering, 2017
24 Pages Posted: 29 Jan 2020
Date Written: May 8, 2017
Near futures expiration days, market participants have a practical need to rollover positions to expirations at a later date. The most common form of market order for rolling over contracts is the calendar spread which dominates transaction volume. Despite this dominance, futures rollovers have been little studied in both developed and developing markets.
In this paper, daily 2016 intra-market stock index futures calendar spread data for the US, UK, India and China markets formed the basis for comparing two commonly employed rollover strategies. These practitioner strategies were compared with newly devised optimal strategies based upon maximizing spread liquidity or minimizing volatility. For large positions, an optimal strategy consistently outperformed standard practitioner strategies in all four markets. For smaller initial futures positions no performance differences between strategies were expected or found. Practical guidelines for rolling futures positions and further research directions are discussed.
Keywords: Calendar Spreads, Stock Index Futures, Roll Yield, FTSE 100, S&P 500, Nifty, A 50, S&P 500 futures, FTSE 100 futures, China futures, Rollover Strategy
JEL Classification: G10, G11, G13, G14, G15
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