Index Spot-Futures Arbitrage: Evidence from Examining S&P 500 Index and SPDR ETF Öffentlichkeit

Abstract

This paper aims to examine the mispricing or arbitrage opportunities between the spot-futures relationship of the S&P 500 index. We use minute-by-minute intraday E-mini S&P 500 Futures trading data to explore the frequency and magnitude of mispricing with respect to two types of underlying spot assets, which are the S&P 500 Index and the SPDR ETF. Two corresponding results of the frequency and magnitude of mispricing are shown, compared, and discussed. We observe a significant amount of mispricings, even in presence of the transaction cost, for both choices of underlying assets. But different patterns and distributions of mispricing are found. Furthermore, we gather the futures and spot trading data from different time periods to examine the impact of volatility on mispricing. Mispricing is more frequent in high volatility months. Finally, a multiple regression analysis is performed to study the effect of time-to-maturity, futures trading volume, dividend yield, and direction of mispricing on the absolute magnitude of mispricing. All the explanatory variables show a significant correlation with the magnitude of mispricing.

Table of Contents

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.1 Evidence of Mispricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.2 Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2.3 Effect of Time-to-Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

4 Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4.1 Pricing Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4.2 Frequency of Mispricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

4.3 magnitude of mispricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4.4 Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4.5 Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5.1 Frequency of Mispricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5.2 Magnitude of Mispricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

5.3 Multiple Regression Analysis of the Magnitude of Mispricing . . . . . . . . . . . . . . . . .20

6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, Finance Economics, Theory
Stichwort	S&P 500 Arbitrage Option pricing Futures Mispricing
Committee Chair / Thesis Advisor	Caroline Fohlin, Emory University
Committee Members	Le Chen, Emory University Elena Pesavento, Emory University

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