Mean Reversion In Stock Index Futures Markets: A Nonlinear Analysis

[ASusilovic]

MEAN REVERSION
IN STOCK INDEX FUTURES
MARKETS: A NONLINEAR
ANALYSIS
MICHAEL MONOYIOS
LUCIO SARNO*


Several stylized theoretical models of futures basis behavior under nonzero
transactions costs predict nonlinear mean reversion of the futures basis
towards its equilibrium value. Nonlinearly mean-reverting models are
employed to characterize the basis of the S&P 500 and the FTSE 100
indices over the post-1987 crash period, capturing empirically these theoretical
predictions and examining the view that the degree of mean reversion
in the basis is a function of the size of the deviation from equilibrium.
The estimated half lives of basis shocks, obtained using Monte Carlo integration
methods, suggest that for smaller shocks to the basis level the basis
displays substantial persistence, while for larger shocks the basis exhibits
highly nonlinear mean reversion towards its equilibrium value. © 2002
Wiley Periodicals, Inc. Jrl Fut Mark 22:285–314, 2002


http://people.maths.ox.ac.uk/~monoyios/docs/mm_sarno_jfm02.pdf

 

[nazzdack]

Quote from ASusilovic:
MEAN REVERSION.....(yada, yada, yada).....equilibrium value.

1) ?......confirming what we have all known since 1990, that nobody is bragging about the "big money" they're making doing index futures arbitrage.
2) Suss, how does anything in that "report" tell me what the next tick in the eMini S&P will be?

 

[ASusilovic]

Quote from nazzdack:

2) Suss, how does anything in that "report" tell me what the next tick in the eMini S&P will be?

Ask me next time I am executing a 1000 lot order.

 

[nazzdack]

Quote from ASusilovic:
.....a 1000 lot order.

1) Size does matter.
2) Is that for your personal account or company account?

 

[ASusilovic]

Quote from nazzdack:

1) Size does matter.
2) Is that for your personal account or company account?

About time for the next milestone trade :

10.000 lots.

 

[heech]

Quote from ASusilovic:

About time for the next milestone trade :

10.000 lots.

Your fund is kicking serious booty! I've been following along on IASG.

Congrats, keep it up.

 

[nazzdack]

Quote from ASusilovic:
----the next milestone....
----10,000 lot.

Be sure that "milestone" is not an anchor tied around your ankle.

 

[MGJ]

Broadly similar to the analysis in Trout's thesis. He parlayed it into huge success, an interview in the 2nd Market Wizards book, and permanent everlasting fame on wikipedia (link). However since you post to Elite Trader and he does not, let me congratulate YOU.

 

[ASusilovic]

Quote from nazzdack:

Be sure that "milestone" is not an anchor tied around your ankle.

Fortes fortuna adiuvat.

 

[ASusilovic]

Quote from MGJ:

Broadly similar to the analysis in Trout's thesis. He parlayed it into huge success, an interview in the 2nd Market Wizards book, and permanent everlasting fame on wikipedia (link). However since you post to Elite Trader and he does not, let me congratulate YOU.

Great trader.