Author(s)： Xinyue Bei1, Yanjia Yang2, Liuling Li3, Bruce Mizrach4
In this paper, the effect of Index Futures on stock market is studied. A new model, which is based on the 3-factor model in Fama and French (1993), the EGARCH-type volatility in Nelson (1991) and non-normal distribution of SSAEPD in Zhu and Zinde-Walsh (2009) is used. Fama-French 25 portfolios for US stock market (1951-2007) are analyzed. Following Pericli and Koutmos (1997), we divide data into 2 sub-samples: sample 1 (pre-SP500 Index Futures) and sample 2 (post-SP500 Index Futures). Our three main findings are as follows. Fama-French 3 factors are still alive in both samples. During the period of post-SP500 Index Futures, the coefficients in this new model become slightly lower and the volatility of stock market is bigger.
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