The October 1987 S&P 500 Stock‐Futures Basis

  • Author(s): LAWRENCE HARRIS
  • Published: Apr 30, 2012
  • Pages: 77-99
  • DOI: 10.1111/j.1540-6261.1989.tb02405.x

ABSTRACT

Five‐minute changes in the S&P 500 index and futures contract are examined over a ten‐day period surrounding the October 1987 stock market crash. Since nonsynchronous trading problems are severe in these data, new index estimators are derived and used. The estimators use the complete transaction history of all 500 stocks. Nonsynchronous trading explains part of the large absolute futures‐cash basis observed during the crash. The remainder may be due to disintegration of the two markets. Even after adjustment for nonsynchronous trading, the index displays more autocorrelation than does the futures and the futures leads the index.

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