Dividend payouts, how do they affect Futures Prices?
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I can only comment on this in theory rather than in practice, but from a textbook perspective going ex-dividend should actually increase a futures price rather than decrease it, because you are subtracting the income. But the price of the underlying decreases, so hmmmmm.....
I think the answer is that the futures price is roughly unchanged?
Here are a couple of formulas for you from my risk management text:
Futures price of a stock index
F = S*e^[(r-q)t]
Another somewhat similar way of looking at this would be the forward price of something with income:
F = (S-I)e^(rt)
So by decreasing "q" you are increasing the futures price, but when underlying goes ex-dividend, S should decrease....
In the above, F is the future/forward price, I is income, q is yield, t is time in years, r is risk-free rate (which is continuously compounded in this case).
Just my offhand guess (as a CFA, I'm 'sposed to know this):
The payouts shouldn't affect the futures price, but the stocks will drop, NARROWING THE SPREAD between the futures and the cash index.
The payouts shouldn't affect the futures price, but the stocks will drop, NARROWING THE SPREAD between the futures and the cash index.