Premium
Determinants of Nikkei futures mispricing in international markets: Dividend clustering, currency risk, and transaction costs
Author(s) -
Qin Jieye,
Green Christopher J.,
Sirichand Kavita
Publication year - 2019
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.22038
Subject(s) - currency , transaction cost , futures contract , econometrics , economics , volatility clustering , autoregressive conditional heteroskedasticity , cluster analysis , financial economics , business , monetary economics , volatility (finance) , finance , statistics , mathematics
This paper develops a comprehensive modified cost‐of‐carry model to study the mispricing of Nikkei 225 index futures contracts traded in Osaka, Singapore, and Chicago based on a new 19‐year data set. Using this improved model, we find that dividend clustering, currency risk, and transaction costs all play an essential role in the estimation of Nikkei mispricing. An exponential smooth transition autoregressive‐GARCH model is used to describe the international dynamics of Nikkei mispricing. The results indicate that generally mean reversion in mispricing and limits to arbitrage are driven more by transaction costs than by heterogeneous investors.