Analyzing the arbitrage opportunities and their determinants in deliverable future contracts: evidence from Pakistan
Abstract
This study explores arbitrage opportunities in Deliverable Futures Contracts (DFC) that arise due to mispricing and also examines the factors affecting it. The cost of carry model is used to calculate the fair prices of futures. Mispricing is taken as a direct measure of ar- bi trage opportunities. With one - year daily data, collected from data portal of Pakistan Stock Exchange, mispricing is calculated in DFCs on 22 stocks. Summary statistics of mispricing confirms the presence of arbitrage opportunities in selected stocks. Random Effect Tobit regression results indicate that time to contract expiry, volatility in underlying stock, trading volume of ready market, and trading volume of future market significantly explain mispricing
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Copyright (c) 2019 Meriam Chuhdary, Aisha Ismail
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