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The Pricing of Australian Index Futures Contracts with Taxes and Transaction Costs

The Pricing of Australian Index Futures Contracts with Taxes and Transaction Costs This paper examines the pricing behaviour of the Australian share price index futures contracts, incorporating taxes and transaction costs. The Australian SPI futures contract provides an interesting research setting to investigate futures pricing because of the combination of a relatively liquid futures market and a broadly based index portfolio with significant transaction costs, together with a tax system which differentiates between trades in the spot and the futures markets for at least one class of investors. The results presented are consistent with the existence of transaction costs as an explanation for the divergence between observed futures prices and predicted prices. The observed futures prices generally lay within the estimated transaction cost bounds. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

The Pricing of Australian Index Futures Contracts with Taxes and Transaction Costs

Twite, Garry J.
Australian Journal of Management , Volume 23 (1): 25 – Jun 1, 1998
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Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/031289629802300104
Publisher site
See Article on Publisher Site

Abstract

This paper examines the pricing behaviour of the Australian share price index futures contracts, incorporating taxes and transaction costs. The Australian SPI futures contract provides an interesting research setting to investigate futures pricing because of the combination of a relatively liquid futures market and a broadly based index portfolio with significant transaction costs, together with a tax system which differentiates between trades in the spot and the futures markets for at least one class of investors. The results presented are consistent with the existence of transaction costs as an explanation for the divergence between observed futures prices and predicted prices. The observed futures prices generally lay within the estimated transaction cost bounds.

Journal

Australian Journal of Management – SAGE

Published: Jun 1, 1998

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