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SPI Futures Market Act As A Market - Maker Facilitating Price Discovery In The S&P / Asx 2 0 0 IndexEach morning on the news,

SPI Futures Market Act As A Market-Maker Facilitating Price Discovery In The S&P/Asx 200 IndexEach morning on the news, the market report contains information about the SPI futures price. As you know from reading this chapter, this is the futures contract on the S&P/ASX 200 Index It is the contract that facilitates speculation and hedging over the broad portfolio 0f 200 stocks that make up the index. The purpose of mentioning the SPI futures price on the news each morning is to give some indication of the direction in which the S&P/ASX 200 Index may move when the market opens. The S&P futures market acts as a market-maker for the S&P/ASX 200 Index. facilitating price discovery. For instance, the price of the SPt futures index today is indicative of tomorrow's opening index value (Lepone & Yang. 2013).Since futures trading takes place around the clock, relevant events that occur after the markets close in Australia (such as movements in the American markets) will be reflected in the SPI futures price. If the SPI futures price is trading at a discount to the previous closing value of the S&P/ASX 200 Index, the index value is expected to fall when the markets open and vice versa.This is pretty good. An indication of where the markets will be heading when they open at 10 am Sydney time. And it is an accurate indicator about 60.00 percent of the time (Commins,2017). In October 2017, however, the Sydney Morning Herald ran a story with the headline, The Australian dollar could be behind why the futures cant pick the ASX. The story was referring to the fact that the futures market and the stock market had become disconnected during September and October of that year. In fact, prediction accuracy had fallen by a third to around 40.00 percent. The explanation, according to the traders interviewed for the article, can be found in the short selling behavior of overseas hedge funds. Sensing weakness in the Australian dollar, the hedge funds were short selling both the Aussie dollar and the top 20 Aussie stocks. This unusually high amount of short selling could lead to weakness in the S&P/ASX 200 that was not reflected in the SPI futures contract value on any given day.Discuss The Accuracy Of Daily Predictions Based On SPI Futures Contract.Historical Accuracy1. Statistical evidence of 60.00 percent accuracy (Commins,2017)2. Significance of reliable daily predictions for market participantsFactors Affecting Prediction Accuracy1. External events and market disconnects2. Unusual market conditions and short selling behavior of overseas hedge fundsIntra-day Volatility1. Limitations of short-term predictions due to intra-day market fluctuations2. Importance of considering longer-term forecasts for better accuracyMarket Efficiency and Convergence1. Influence of new information and adjustments by market participants2. Convergence between SPI futures price and index value by market opening

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