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Determinants of Nikkei futures mispricing in international markets: Dividend clustering, currency risk, and transaction costs

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  • Jieye Qin
  • Christopher J. Green
  • Kavita Sirichand

Abstract

This paper develops a comprehensive modified cost‐of‐carry model to study the mispricing of Nikkei 225 index futures contracts traded in Osaka, Singapore, and Chicago based on a new 19‐year data set. Using this improved model, we find that dividend clustering, currency risk, and transaction costs all play an essential role in the estimation of Nikkei mispricing. An exponential smooth transition autoregressive‐GARCH model is used to describe the international dynamics of Nikkei mispricing. The results indicate that generally mean reversion in mispricing and limits to arbitrage are driven more by transaction costs than by heterogeneous investors.

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  • Jieye Qin & Christopher J. Green & Kavita Sirichand, 2019. "Determinants of Nikkei futures mispricing in international markets: Dividend clustering, currency risk, and transaction costs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(10), pages 1269-1300, October.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:10:p:1269-1300
    DOI: 10.1002/fut.22038
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    Cited by:

    1. Peter Miu & Meng‐Lan Yueh, 2021. "A comment on “Determinants of Nikkei futures mispricing in international markets: Dividend clustering, currency risk, and transaction costs”," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 2079-2082, December.
    2. Jieye Qin & Christopher J. Green & Kavita Sirichand, 2021. "Comment on “Determinants of Nikkei futures mispricing in international markets: Dividend clustering, currency risk and transaction costs” by Peter Miu and Meng‐Lan Yueh: Reply," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 2083-2084, December.
    3. Miu, Peter & Yueh, Meng-Lan & Han, Jing, 2021. "Performance of Japanese leveraged ETFs," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    4. Edward Curran & Jack Hunt & Vito Mollica, 2020. "Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(11), pages 1793-1806, November.

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