Maturity Effects in Futures Markets: Evidence from Eleven Financial Futures Markets
AbstractThis essay examines the volatility dynamics of the financial futures returns. Samuelson (1965) demonstrated theoretically that the conditional variance of changes in futures prices should increase as the time-to-maturity decreases. Interestingly, the empirical evidence on the Samuelson hypothesis is mixed. This essay revisits that issue, applying a unified GARCH framework to a unique data set of daily data, spanning 19 years up to 2000, and eleven types of financial contracts (currencies, S&P500, Nikkei 225, Eurodollar, Treasury Bills). The conditional variance equation is augmented by time-to-maturity, open interest and trading volume variables. I detect evidence for a role of the time-to-maturity in currency futures, and mixed evidence in equity index and interest rate futures. Lagged trading volume and open interest are positively related to volatility in most of these financial futures but they do not fully account for the estimated conditional variance.
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Bibliographic InfoPaper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt1n04g31b.
Date of creation: 01 Apr 2003
Date of revision:
futures; volatility; GARCH; time-to-maturity;
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