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Stock Volatility and the Levels of the Basis and Open Interest in Futures Contracts
Author(s) -
CHEN NAIFU,
CUNY CHARLES J.,
HAUGEN ROBERT A.
Publication year - 1995
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.1540-6261.1995.tb05174.x
Subject(s) - stock index futures , futures contract , volatility (finance) , stock (firearms) , financial economics , economics , econometrics , market liquidity , stock market index , monetary economics , stock market , engineering , geography , mechanical engineering , context (archaeology) , archaeology
This article tests a theoretical model of the basis and open interest of stock index futures. The model is based on the differences between stock and futures in terms of investors' ability to customize stock portfolios and liquidity. Empirical evidence confirms the model's prediction that increased volatility decreases the basis and increases open interest.