Arbitrage, Nontrading, and Stale Prices: October 1987
AbstractThis article explains a puzzle created by the Standard and Poor's 500 cash and futures prices during the crash of October 1987. The cash index appears to be a moving average of the futures, but nontrading in constituent stocks explains only the initial period of delayed openings. However, execution of stale limit buy orders, given the high volume and NYSE market mechanisms at the time, resulted in extraordinary levels of stock prices that were not caused by nontrading. The model is supported in aggregate S&P data and transactions data for individual stocks. Copyright 1992 by University of Chicago Press.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 65 (1992)
Issue (Month): 4 (October)
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- Joseph K.W. Fung & Philip Yu, 2007. "Order Imbalance and the Dynamics of Index and Futures Prices," Working Papers 072007, Hong Kong Institute for Monetary Research.
- Joseph K.W. Fung, 2006. "Order Imbalance and the Pricing of Index Futures," Working Papers 132006, Hong Kong Institute for Monetary Research.
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