NYSE Rule 80A restrictions on index arbitrage and market linkage

To the extent that NYSE Rule 80A collar, which restricts index arbitrage form of program trading on volatile days, aims to delink S&P 500 cash and futures markets and prevent transmission of volatility from the futures to the cash market, this study finds the collar to be ineffective. The analys...

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Bibliographic Details
Published inApplied financial economics Vol. 19; no. 20; pp. 1675 - 1685
Main Author Ergun, A. Tolga
Format Journal Article
LanguageEnglish
Published London Routledge 01.10.2009
Taylor and Francis Journals
Routledge, Taylor & Francis Group
SeriesApplied Financial Economics
Subjects
Arbitrage
Capital market regulation
Futures
Regression analysis
Rules
Securities markets
Securities trading
Stock exchange
Stock prices
Studies
U.S.A
Volatility
United States > US
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Summary:To the extent that NYSE Rule 80A collar, which restricts index arbitrage form of program trading on volatile days, aims to delink S&P 500 cash and futures markets and prevent transmission of volatility from the futures to the cash market, this study finds the collar to be ineffective. The analyses are based on lead-lag regressions for the first and second moments using data diurnalized via a nonparametric filter for intraday volatility periodicity. The regression results also suggest that, consistent with the literature, the futures market has a much stronger tendency to lead the underlying cash market than lag and there is a strong bi-directional lead-lag relationship between volatilities of the two markets, which does not support the assertion that there is a systematic transmission of volatility from the futures to the cash market.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0960-3107
1466-4305
DOI:10.1080/09603100802599613