Abstract
In analyzing the behavior of the stock market and stock-index futures during October 1987, some observers noted the large discounts of futures to the cash index. While the effects of delayed openings on October 19 and trading halts on October 20 on futures discounts were noted by some, the effect of price-adjustment delays on stock indices generally was not highlighted in interpreting the events of October 19. However, the temporal relationship between the prices of the S&P 500 futures contract and the stock index itself is important in assessing the effect of stock-index futures trading. According to some, the large negative basis that existed implies a transmission effect from the futures market to the stock market via a revelation of stock index values on the floor of the Chicago Mercantile Exchange. Such an interpretation regarding the effects of futures trading is affected by the statistical properties of the price series and the presence of a significant nontrading affect.
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Moriarty, E., Gordon, J.D., Kuserk, G., Wang, G. (1990). Statistical Analysis of Price and Basis Behavior: October 12–26, 1987, S&P 500 Futures and Cash. In: Dwyer, G.P., Hafer, R.W. (eds) The Stock Market: Bubbles, Volatility, and Chaos. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7881-3_5
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DOI: https://doi.org/10.1007/978-94-015-7881-3_5
Publisher Name: Springer, Dordrecht
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