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Maturity effects in the Mexican interest rate futures market
Author(s) -
Gurrola Pedro,
Herrerías Renata
Publication year - 2011
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20477
Subject(s) - volatility (finance) , futures contract , economics , econometrics , financial economics , maturity (psychological) , expiration , interest rate , futures market , monetary economics , psychology , developmental psychology , psychiatry , respiratory system
This study investigates the relationship between volatility and contract expiration for the case of Mexican interest rate futures. Specifically, it examines the hypothesis that the volatility of futures prices should increase as contracts approach expiration (the “maturity effect”). Using panel data techniques, the study assesses the differences in volatility patterns between contracts. The results show that although the maturity effect was sometimes present, the inverse effect prevails; volatility decreases as expiration approaches. On the basis of the premises of the negative covariance hypothesis, the study provides additional criteria that explain this behavior in terms of the term structure dynamics. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:371–393, 2011