A threshold error‐correction model for intraday futures and index returns

摘要: Index-futures arbitragers only enter into the market if deviation from arbitrage relation is sufficiently large to compensate for transaction costs and associated interest rate dividend risks. We estimate band around theoretical futures price within which not profitable most arbitragers, using a threshold autoregression model. Combining these thresholds with an error-correction model, we show that impact of mispricing error increasing magnitude information effect lagged returns on index significantly larger when negative. © 1998 John Wiley & Sons, Ltd.