Determinants of Calendar Spread of SET50 Index Futures
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Abstract
Speculation on the spreads of futures contracts with different expiry dates or calendar spreads may have good return, and it is less risky than outright positions. If determinants of the spreads are known, it may increase the chance of profitability. With the help of Vector Autoregression (VAR), this study tested the variables recommended by Hemler and Longstaff model and an empirical study including T-bill interest rate, market turnover, volatility of the underlying asset and time to maturity of contracts. It was found that all of the above variables, except the interest rate, were Granger-causes and leading indicators of the SET50 calendar spreads but depending on market conditions. By the way, explanatory powers of the variables were low. This perhaps resulted from missing of important factors, for example, behaviors of the market players.
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