Mispricing in stock index futures contracts: evidence for the FTSE 100 and FTSE mid 250 contracts

Abstract

Abstract This paper investigates the pricing efficiency of the FTSE 100 and FTSE mid 250 index futures contracts traded in the UK. The results show that while there are many deviations from fair value, these are generally quite small in magnitude with both contracts tending to be efficiently priced. Although mispricings are larger and more persistent for the mid 250 contract than for the FTSE 100 contract, this is consistent with the larger transactions costs and difficulties associated with trading the illiquid constituents of the mid 250 index.