The truth about interest rate futures and forwards: Evidence from high frequency data

Russell Poskitt

doi:10.1016/j.gfj.2007.06.003

The truth about interest rate futures and forwards: Evidence from high frequency data

Russell Poskitt

Research output: Contribution to journal › Article › peer-review

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Abstract

This paper examines the pricing of Eurodollar futures and US dollar FRA contracts using a high frequency data set. I find the median futures/FRA differential is close to zero and the dispersion of the differential smaller than reported in prior studies using low frequency data and implied forward rates as proxies for forward rates. Arbitrage opportunities are linked to the presence of stale FRA quotes and the oscillatory behavior of FRA quotes. Inter-market information flows are found to be of much shorter duration than previously reported with the futures market playing the dominant role in the information transmission process in the shorter-dated maturities. © 2007 Elsevier Inc. All rights reserved.

Original language	English
Pages (from-to)	319-336
Number of pages	18
Journal	Global Finance Journal
Volume	18
Issue number	3
DOIs	https://doi.org/10.1016/j.gfj.2007.06.003
Publication status	Published - 2008

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title = "The truth about interest rate futures and forwards: Evidence from high frequency data",

abstract = "This paper examines the pricing of Eurodollar futures and US dollar FRA contracts using a high frequency data set. I find the median futures/FRA differential is close to zero and the dispersion of the differential smaller than reported in prior studies using low frequency data and implied forward rates as proxies for forward rates. Arbitrage opportunities are linked to the presence of stale FRA quotes and the oscillatory behavior of FRA quotes. Inter-market information flows are found to be of much shorter duration than previously reported with the futures market playing the dominant role in the information transmission process in the shorter-dated maturities. {\textcopyright} 2007 Elsevier Inc. All rights reserved.",

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AB - This paper examines the pricing of Eurodollar futures and US dollar FRA contracts using a high frequency data set. I find the median futures/FRA differential is close to zero and the dispersion of the differential smaller than reported in prior studies using low frequency data and implied forward rates as proxies for forward rates. Arbitrage opportunities are linked to the presence of stale FRA quotes and the oscillatory behavior of FRA quotes. Inter-market information flows are found to be of much shorter duration than previously reported with the futures market playing the dominant role in the information transmission process in the shorter-dated maturities. © 2007 Elsevier Inc. All rights reserved.

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DO - 10.1016/j.gfj.2007.06.003

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VL - 18

SP - 319

EP - 336

JO - Global Finance Journal

JF - Global Finance Journal

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ER -

The truth about interest rate futures and forwards: Evidence from high frequency data

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