Behavioralize This! International Evidence on Autocorrelation Patterns of Stock Index and Futures Returns
November 1999
Dong-Hyun Ahn, Jacob Boudoukh, Matthew Richardson, Robert Whitelaw
ABSTRACT
This paper investigates the relation between returns on stock indices and their corresponding futures contracts
in order to evaluate potential explanations for the pervasive yet anomalous evidence of positive, short-horizon
portfolio autocorrelations. Using a simple theoretical framework, we generate empirical implications for both microstructure
and behavioral models. These implications are then tested using futures data on 24 contracts across 15 countries.
The major findings are (i) return autocorrelations of indices tend to be positive even though their corresponding
futures contracts have autocorrelations close to zero, (ii) these autocorrelation differences between spot and
futures markets are maintained even under conditions favorable for spot-futures arbitrage, and (iii) these autocorrelation
differences are most prevalent during low volume periods. These results point us towards a market microstructure-based
explanation for short-horizon autocorrelations and away from explanations based on current popular behavioral models.
Subject: Investments/Market Efficiency, Investments/Predictability of Asset Returns, Investments/Derivatives
Classification: Empirical, Theoretical
Ahn: (919) 962-3203 ahnd@icarus.bschool.unc.edu
Kenan-Flagler Business School, University of North Carolina, Chapel Hill
Boudoukh: (212) 998-0305 jboudouk@stern.nyu.edu
http://www.stern.nyu.edu/~jboudouk/
Richardson: (212) 998-0349 mrichar0@stern.nyu.edu
http://www.stern.nyu.edu/~mrichar0/
Whitelaw (212) 998-0338 rwhitela@stern.nyu.edu
http://www.stern.nyu.edu/~rwhitela/
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