Inter-market linkages : a study of the relationship between the bank bill and the bank bill futures markets in New Zealand
• the implied forward rate (IFR) model performs well in pricing the bill futures contract. The futures/IFR differential is negligible compared to that documented in many prior studies. The performance of the IFR model is attributed to the fact that it mirrors the favoured quasi-arbitrage strategies of the price-setting interbank dealers.
• quasi-arbitrage opportunities are infrequent and substantially less profitable than prior studies report. This is also the case when the stringent requirements for conventional arbitrage are relaxed. The frequency and profitability of quasi-arbitrage opportunities are on a par with those reported in the stock index futures and foreign exchange markets.
• arbitrage opportunities exert only a weak equilibriating influence on the bill futures yield, suggesting that arbitrage activity plays little formal role in price-setting in the bill futures market.
• information transmission between the bill and bill futures markets is dominated by the contemporaneous flow of information between the two markets and the lagged flow of information from the bill futures market to the bill market. This is consistent with the proposition that bill dealers base their quotes on the bill futures yield curve.
Advisor:Associate Professor Henk Berkman; Professor Charles Corrado
School Location:New Zealand
Source Type:Master's Thesis
Date of Publication:01/01/2001