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

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

Rights statement

• Permission granted by the author to include this thesis or dissertation in this repository. All rights reserved by the author. Please contact the author for information regarding the reproduction and use of this thesis or dissertation.

School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, Finance Economics, Theory
Parola chiave	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

Ultima modifica

Primary PDF

Thumbnail	Title	Date Uploaded	Actions
	Index Spot-Futures Arbitrage: Evidence from Examining S&P 500 Index and SPDR ETF ()	2021-04-19 04:06:27 -0400	Press to Select an action Download

Supplemental Files

Thumbnail	Title	Date Uploaded	Actions