Brunel University Research Archive (BURA) >
Schools >
School of Social Sciences >
School of Social Sciences Theses >

Please use this identifier to cite or link to this item: http://bura.brunel.ac.uk/handle/2438/5391

Title: The economics of stock index futures: Theory and evidence
Authors: Holmes, Philip Roland
Advisors: Antoniou, T
Keywords: FTSE-100 stock index futures contract
Investor utility
Hedging effectiveness
Johansen cointegration procedure
Futures market efficiency
Publication Date: 1993
Publisher: School of Social Sciences Theses
Abstract: This thesis aims to provide detailed investigation into the role and functioning of the FTSE-100 stock index futures contract, by examining four interrelated issues. Chapter 1 reviews the literature, demonstrating that stock index futures can increase investor utility by offering hedging and investment opportunities. Further, the price discovery role of futures is discussed. Chapter 2 investigates the risk return relationship for the FTSE-100 contract within a CAPM framework. While CAPM adequately explains returns prior to October 1987, post-crash the contract is riskier and excess returns and a day of the week effect are evident. Chapter 3 examines the impact of futures on the underlying spot market using GARCH, which allows examination of the link between information and volatility. While spot prices are more volatile post-futures, this is due to more rapid impounding of information. The view that futures destabilise spot markets and should be subject to further regulation is questioned. Chapter 4 examines futures market efficiency using the Johansen cointegration procedure and variance bounds tests which are developed here. Results suggest futures prices provide unbiased predictions of future spot prices for 1, 2 and 4 months prior to maturity of the contract. For 3, 5 and 6 months prior to maturity the unbiasedness hypothesis does not hold. Chapter 5 discusses the major role of futures; hedging. Hedge ratios and hedging effectiveness are examined in relation to duration and expiration effects. Hedge ratio stability is also examined. Finally, hedging strategies based on historical information are examined. Results show there are duration and expiration effect, hedge ratios are stationary and using historical information does not greatly reduce hedging effectiveness. The FTSE-100 contract is shown to be a highly effective means by which to hedge risk. Chapter 6 provides a summary and concluding remarks concerning the relevance of the research carried out here.
Description: This thesis was submitted for the degree of Doctor of Philosophy and awarded by Brunel University.
URI: http://bura.brunel.ac.uk/handle/2438/5391
Appears in Collections:School of Social Sciences Theses
Economics and Finance

Files in This Item:

File Description SizeFormat
FulltextThesis.pdf10.29 MBAdobe PDFView/Open

Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.

 


Library (c) Brunel University.    Powered By: DSpace
Send us your
Feedback. Last Updated: September 14, 2010.
Managed by:
Hassan Bhuiyan