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A Comparison of Forward and Futures Prices of an Interest Rate‐Sensitive Financial Asset
Author(s) -
MEULBROEK LISA
Publication year - 1992
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1992.tb03991.x
Subject(s) - economics , futures contract , financial economics , econometrics , interest rate , asset (computer security) , divergence (linguistics) , sign (mathematics) , financial asset , forward price , futures market , monetary economics , finance , mathematics , computer science , mathematical analysis , linguistics , philosophy , computer security
This paper focuses on contractual distinctions as an explanation for the price divergence between futures and forward contracts. Specifically, it investigates the effect of marking‐to‐market on the observed price differences using the pricing model described in Cox, Ingersoll, and Ross (CIR) (1981, Journal of Financial Economics 9 , 321–346). Using previously unavailable data, this paper employs Eurodollars, an interest rate‐sensitive financial asset, to test the CIR model. Unlike prior empirical studies, test results support both the weak prediction concerning the sign of the average price difference and the stronger prediction that specific covariances explain the variation in the price differences.