Inter-market spread trading: evidence from UK index futures markets

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Abstract:

This paper employs the theoretical no-arbitrage conditions to investigate whether the inter-market spread comprising of positions in the FTSE 100 contract and FTSE Mid 250 contract is priced according to fair value. The results show that while transaction cost limits are violated on a number of occasions, the overall profitability of the strategy is seriously impaired by the difficulty, which traders face, in liquidating their positions before relative market movements between the two legs of the spread occur.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/09603100110044236

Publication date: November 1, 2002

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