|M.Sc Thesis||Department of Industrial Engineering and Management|
|Supervisor:||Dr. Joseph Yagil|
|Full Thesis text - in Hebrew|
The volume of trading in futures on the Tel Aviv Stock Exchange (henceforth -TASE) is low compared to the trading volume in similar traded financial instruments such as options on the same underlying asset. Trading in futures on the TASE began in 1995. Today, trading in futures is conducted on a number of underlying asset types, such as stock indexes (TA 25 and TA Banks), the dollar, the Euro, and the interest rate. We know of no empirical research discussing the pricing of TA 25 index futures (henceforth -index futures) on the TASE. The potential contribution of the current research is in examining the degree to which the index futures on the TASE are priced according to the theoretical model, and if, in retrospect, abnormal returns could have been made. In addition, there is empirical research discussing market efficiency and anomalies attributable to the seasonal behavior of securities returns that conflicts with the efficient market hypothesis. The current research will also examine the efficiency of the index futures market in Israel; namely, the degree to which futures prices on the TASE reflects relevant available information, and the existence of anomalies.
One of the central research questions in this work is: in retrospect, could abnormal returns have been achieved from futures trading by using the futures pricing model?
To accomplish these goals, we used the maximum trading data available, specifically, daily trading data beginning from the first day of trading in futures on the TASE in 1995 until 2007. To determine the degree of efficiency of the futures market, we employed two tests commonly used in the literature—the serial correlation test and the run test.
The empirical results of the research indicated that abnormal returns can be obtained by purchasing undervalued index futures on the valuation day and holding them until their expiry day. Lastly, it will be interesting to examine in future research the possibility of obtaining abnormal returns by trading in futures on additional underlying assets on the TASE such as the dollar, the Euro, and the interest rate.