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| Author: | Kumar, P. Seppi, D. |
| Title: | Information and index arbitrage |
| Journal: | Journal of Business
1994 : OCT, VOL. 67:4, p. 481-510 |
| Index terms: | BUSINESS ECONOMICS INFORMATION INDEXING |
| Language: | eng |
| Abstract: | A random cash/futures basis is derived in a dynamic multimarket learning game with sequential information shocks and strategic arbitrageurs who trade to exploit gaps in the basis. Statistical properties of the authors' theoretical basis are derived both withand without index arbitrage. The authors find that basis volatility, a measure of intermarket mispricing, may initially increase even as individual prices become more precise and that arbitrage reduces basis volatility. |
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