This problem is concerned with the dynamic relationship between the spot and futures prices of the S&P 500 index. The data file sp5may.dat has three columns: log(futures price), log(spot price), and cost-of-carry (×100). The data were obtained from the Chicago Mercantile Exchange for the S&P 500 stock index in May 1993 and its June futures contract. The time interval is 1 minute (intraday).

Several authors used the data to study index futures arbitrage. Here we focus on the first two columns. Let ft and st be the log prices of futures and spot, respectively. Consider yt = ft − ft−1 and xt= st −

st−1. Build a regression model with time series errors between {Yt}

and {xt}, with yt being the dependent variable.