Abstract
This study examines the pricing behaviour of share price index futures contracts traded on the Australian market. Particularly, we investigate the relationship between futures prices and the no-arbitrage price predicted by the current spot prices. Consistent with similar studies of U.S. markets, we find that the observed share price index futures prices differ from those predicted by the no-arbitrage prices, but that the size and sign of this difference is not constant across the contracts or across the time period included in our sample. The explanations suggested in the literature for the existence of these price differences are predominantly institutional in nature. These include differential tax treatment, short selling constraints, thin trading and transaction costs. We find that these explanations do not appear to be capable of explaining the size or sign of the pricing differences we observe.
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