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Measuring True Stock Index Value in the Presence of Infrequent Trading

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  • Jokivuolle, Esa

Abstract

Based on the Beveridge-Nelson (1981) decomposition of an ARIMA process, I present a measure of true stock index value that is not directly observable due to infrequent trading of stocks. The technique is illustrated with daily observations of the Russell 2000 index. This new measure might well prove useful in studies of lead-lag relationships between index derivatives and spot market and futures basis measurements.

Suggested Citation

  • Jokivuolle, Esa, 1995. "Measuring True Stock Index Value in the Presence of Infrequent Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 455-464, September.
    • Handle: RePEc:cup:jfinqa:v:30:y:1995:i:03:p:455-464_00
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    Citations

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    Cited by:

    1. Erik Theissen, 2012. "Price discovery in spot and futures markets: a reconsideration," The European Journal of Finance, Taylor & Francis Journals, vol. 18(10), pages 969-987, November.
    2. Vaihekoski, Mika, 2008. "History of finance research and education in Finland : the first thirty years," Research Discussion Papers 18/2008, Bank of Finland.
    3. Cortazar, Gonzalo & Beuermann, Diether & Bernales, Alejandro, 2013. "Risk Management with Thinly Traded Securities: Methodology and Implementation," IDB Publications (Working Papers) 4647, Inter-American Development Bank.
    4. Egle Aigars & Matvejevs Andrejs & Fjodorovs Jegors, 2012. "The Evaluation of Financial Assets with Autocorrelations in Returns," Information Technology and Management Science, Sciendo, vol. 15(1), pages 116-119, December.
    5. Roll, Richard & Schwartz, Eduardo & Subrahmanyam, Avanidhar, 2014. "Trading activity in the equity market and its contingent claims: An empirical investigation," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 13-35.
    6. Korkeamäki, Timo & Rainio, Elina & Takalo, Tuomas, 2010. "Law and stock markets : evidence from an emerging market," Research Discussion Papers 1/2010, Bank of Finland.
    7. Kempf, Alexander & Korn, Olaf, 1998. "Trading System and Market Integration," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 220-239, July.
    8. Mika Vaihekoski, 2011. "History of financial research and education in Finland," The European Journal of Finance, Taylor & Francis Journals, vol. 17(5-6), pages 339-354.
    9. repec:zbw:bofrdp:2010_001 is not listed on IDEAS
    10. Korkeamäki, Timo & Rainio, Elina & Takalo, Tuomas, 2010. "Law and stock markets: evidence from an emerging market," Bank of Finland Research Discussion Papers 1/2010, Bank of Finland.
    11. Mercer, Jeffrey M., 1997. "An alternative specification for intraday simultaneity in spot and futures markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(3), pages 667-682.
    12. Day, Theodore E. & Wang, Pingying, 2002. "Dividends, nonsynchronous prices, and the returns from trading the Dow Jones Industrial Average," Journal of Empirical Finance, Elsevier, vol. 9(4), pages 431-454, November.
    13. Timo Korkeamäki & Elina Rainio & Tuomas Takalo, 2013. "Reforming corporate law in an emerging market," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(3), pages 509-551, July.
    14. Alejandro Bernales & Diether W. Beuermann & Gonzalo Cortazar, 2014. "Thinly traded securities and risk management," Estudios de Economia, University of Chile, Department of Economics, vol. 41(1 Year 20), pages 5-48, June.
    15. repec:zbw:bofrdp:2008_018 is not listed on IDEAS
    16. Ángel Pardo & Francisco Climent, 2000. "Relaciones temporales entre el contrato de futuro sobre IBEX-35 y su activo subyacente," Investigaciones Economicas, Fundación SEPI, vol. 24(1), pages 219-236, January.
    17. Fong, Wai-Ming & Valente, Giorgio & Fung, Joseph K.W., 2010. "Covered interest arbitrage profits: The role of liquidity and credit risk," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1098-1107, May.
    18. Stevenson, Alan & Boyd, Milton S., 2001. "Lead Lag Relationships Between Resource Prices and Corresponding Resource Company Share Prices," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125959, Australian Agricultural and Resource Economics Society.
    19. repec:hhs:bofrdp:2008_018 is not listed on IDEAS
    20. David S. Bates, 2009. "U.S. Stock Market Crash Risk, 1926-2006," NBER Working Papers 14913, National Bureau of Economic Research, Inc.
    21. Bates, David S., 2012. "U.S. stock market crash risk, 1926–2010," Journal of Financial Economics, Elsevier, vol. 105(2), pages 229-259.

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