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Efficiency in the Pricing of the FTSE 100 Futures Contract
Author(s) -
Miffre Joëlle
Publication year - 2001
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00142
Subject(s) - futures contract , inefficiency , predictability , economics , predictive power , econometrics , risk premium , financial economics , variance (accounting) , conditional variance , autoregressive conditional heteroskedasticity , microeconomics , mathematics , volatility (finance) , statistics , accounting , epistemology , philosophy
This paper studies the pricing efficiency in the FTSE 100 futures contract by linking the predictable movements in futures returns to the time‐varying risk and risk premia associated with prespecified factors. The results indicate that the predictability of the FTSE 100 futures returns is consistent with a conditional multifactor model with time‐varying moments. The dynamics of the factor risk premia, combined with the variation in the betas, capture most of the predictable variance of returns, leaving little variation to be explained in terms of market inefficiency. Hence the predictive power of the instruments does not justify a rejection of market efficiency.