The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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A Transactions Data Test of Stock Index Futures Market Efficiency and Index Arbitrage Profitability
Published: 12/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb04644.x
Y. PETER CHUNG
This paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts. The spot value of the index is computed with transactions prices for the component shares of the index obtained from the Fitch database. The tests account for transaction costs, execution lags, and the uptick rule for short sales of stocks. Results indicate that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time.
Why Option Prices Lag Stock Prices: A Trading‐based Explanation
Published: 12/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb05136.x
KALOK CHAN, Y. PETER CHUNG, HERB JOHNSON
While many studies find that option prices lead stock prices, Stephan and Whaley (1990) find that stocks lead options. We find no evidence that options, even deep out‐of‐the‐money options, lead stocks. After confirming Stephan and Whaley's results, we show their results can be explained as spurious leads induced by infrequent trading of options. We show that the stock lead disappears when the average of the bid and ask prices is used instead of transaction prices. Hence, we find no evidence of arbitrage opportunities associated with the stock lead.
Depositary Receipts, Country Funds, and the Peso Crash: The Intraday Evidence
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00303
Warren Bailey, Kalok Chan, Y. Peter Chung
We study the intraday impact of exchange rate news on emerging market American Depositary Receipts (ADRs) and closed‐end country funds during the 1994 Mexican peso crisis. Peso exchange‐rate changes affect prices and trading volumes of Latin American equities, and some closed‐end fund behavior is consistent with “noise trader” theories of small investors. However, there is no evidence that peso depreciation triggers a significant sell‐off of non‐Mexican securities or that other non‐Mexican trading patterns change at times of high peso news flow. Thus, the “Tequila Effect” is largely confined to price changes.