Intra day and Inter day Basis Dynamics: Evidence From the FTSE 100 Index Futures Market
Finance & Accounting
|Speaker:||Ian Garrett, University of Manchester|
|Date:||Wednesday 29 November 2000|
Regrettably, Ian Garrett, fell foul of the train problems. Having reached Crewe at 9.00am, he was told that his ETA at Exeter was 'around' 5.00pm, and consequently it was decided to reschedule his seminar for next term.
We examine the intraday and interday dynamics of both the level of and changes in the FTSE 100 index futures mispricing. Like numerous previous studies we find significant evidence of mean-reversion and hence predictability in mispricing changes measured over high (minute by minute) and low (daily) frequencies. Contrary to other studies we show explicitly that for high frequency data, this predictability is not due to microstructure effects but due to arbitrage activity. Using a threshold autoregressive model that is consistent with arbitrage behaviour we show that such models imply first-order autocorrelation in mispricing changes similar in magnitude to that actually observed. For low frequency data, we show that predictability is driven neither by arbitrage activity nor microstructure effects. Rather, it is a statistical illusion that is the result of overdifferencing a trend stationary series.