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Forward–futures price differences in the UK commercial property market: Arbitrage and marking-to-model explanations

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  • Stanescu, Silvia
  • Tunaru, Radu
  • Candradewi, Made Reina

Abstract

In this paper the differences between forward and futures prices for the UK commercial property market are analyzed, using both time series and panel data. A first battery of tests establishes that the observed differences are statistically significant over the study period. Further analysis considers the modeling of this difference using mean-reverting models. The proposed models are then estimated with a number of alternative estimation methods and second stage statistical tests are implemented in order to decide which model and estimation method best represent the data.

Suggested Citation

  • Stanescu, Silvia & Tunaru, Radu & Candradewi, Made Reina, 2014. "Forward–futures price differences in the UK commercial property market: Arbitrage and marking-to-model explanations," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 177-188.
  • Handle: RePEc:eee:finana:v:34:y:2014:i:c:p:177-188
    DOI: 10.1016/j.irfa.2014.05.012
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    References listed on IDEAS

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    1. Robert A. JARROW & George S. OLDFIELD, 2008. "Forward Contracts And Futures Contracts," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 11, pages 237-246 World Scientific Publishing Co. Pte. Ltd..
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    1. repec:eee:finana:v:53:y:2017:i:c:p:80-93 is not listed on IDEAS

    More about this item

    Keywords

    Total return swaps and futures; Panel data; Mean-reversion; Markov Chain Monte Carlo;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G19 - Financial Economics - - General Financial Markets - - - Other

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