ARBITRAGE OPPORTUNITIES MALAYSIA FUTURES MARKET … Opportunities and Pricing... · Corporate...

ARBITRAGE OPPORTUNITIES AND PRICING EFFICIENCY IN MALAYSIA FUTURES MARKET - KUALA LUMPUR STOCK

EXCHANGE COMPOSITE INDEX FUTURES (FKLI)

bull -~ ~ ~ ~bullr ~ - 1Jason Jasmy Khong

Corporate Master in Business Administration

2013

Pusat 1lthidn at lbklumat Akadtmik UNIVERSm ~YSIA SARAWAK

PKHIDMAT MAKLUMAT AKADEMIK

1IIIIIIIIIiiiiilllllllili 1000246861

ARBITRAGE OPPORTUNITIES AND PRICING EFFICIENCY IN MALAYSIA FUTURES MARKET - KUALA LUMPUR STOCK EXCHANGE COMPOSITE

INDEX FUTURES (FKLI)

JASON JASMY KHONG

This project is submitted in partial fulfillment ofthe requirements for the degree of Corporate Master in Business Administration

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Faculty of Economics and Business UNlVERSITI MALAYSlASARAWAK

2013

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STATEMENT OF ORIGINALITY

The work describe in this project entitled

ARBITRAGE OPPORTUNITIES AND PRICING EFFICIENCY IN MALAYSIA FUTURES MARKET - KUALA LUMPUR STOCK EXCHANGE COMPOSITE middot


is to the best of the authors knowledge that ofthe author except

where due reference is made

1- s- 201

Date submitted Jason Jasmy Khong 11031926

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ABSTRACT



By

Jason Jasmy Khong

(A futures contract is defined as the agreement between two parties which are the seller

and the buyer who agreed to purchase or sell a certain product The contract states all the

details of the transaction such as the agreed quantity price and the delivery of the product

on a predetennined date Both parties have the responsibilities and obligations to carry out

the agreed transaction at the maturity date A futures contract is viewed as a hedging tool

by the market players in order to minimize the risk exposure in cash market when there is

adverse price change in the market With the existence of stock indices futures contract

investors are now having a better control in managing their risk without changing their

portfolio compositi0o In order to be a good hedging tool hedging effectiveness is one the

important criteria to measure the performance of the futures contract It implies the

accuracy of the futures contract to reflect its underlying market position Therefore pricing

of the futures contract is very crucial because it will affect the hedging ability and

performance of a future con~t Price ampmvergence~od~lbull indicates that price

discrepancies between the cash market and futur~s market should not last long An - ~

effective arbitrage activity is vital to make sure prices in both markets are moving in line

Arbitrageurs create a mechanism to ensure that prices do not deviate substantially from its

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fair price for a long period of time Therefore if arbitrage is not effective futures market

will not be a good hedging tool for the investor The general objective of this study is to

identify the arbitrage opportunities and pricing efficiency for the Kuala Lumpur Stock Exchange Colnposite Index Futures (FKLI) The results show there are constant

happenings of negative basis price deviations in the FKLI contracts under the simple cost

of carry model This confinns that there are man opportunities available for traders to

undertake arbitrage activities The results also suggest that the pricing mechanism is

sensitive to the price volatility in the equity market Moreover there are still some

violations of the arbitrage free boundary remained in observation after testing under

different level of transaction costs which imply that the investor who is able to lower their

transaction costs will have greater exploitation to the arbitrage opportunities than others

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ABSTRAK

PELUANG ARBITRAJ DAN KECEKAPAN HARGA DI PASARAN KONTRAK NIAGA HADAPAN DI MALAYSIA - KONTRAK NIAGA HADAPAN INDEKS

SAHAM KUALA LUMPUR (FKLI) Oleh

Jason Jasmy Khong

Kontrak niaga hadapan adalah peIjanjian antara penjual dan pembeli sesuatu komoditi yang

menetapkan harga kuantiti dan kualiti komoditi tersebut dan masa bila urus niaga ini akan

berlaku Kontrak ini membawa kewajipan kepada kedua-dua pihak untuk menunaikan

syarat-syarat yang ditetapkan Salah satu kelebihan kontrak niaga hadapan adalah untuk

membekalkan peserta pasaran dengan alat perlindungan nilai yang dapat mengimbangi

risiko mereka dalam pasaran tunai Pengenalan kontrak niaga hadapan indeks saham

menyediakan altematif kepada pelabur untuk mengawal risiko pasaran dalam portfolio

mereka tanpa mengubah komposisi saham di dalam portfolio Keberkesanan lindung nitai

kontrak niaga hadapan bergantung kepada setakat mana kontrak itu dapat mencerminkan

pasaran asasnya dengan tepat Oleh sehab itu mekanisme harga kontrak niaga hadapan

yang cekap adalah penting untuk memastikan salah harga antara pasaran tunai dan pasaran

niaga hadapan adalah minimum Dengan itu akitiviti arbitraj memainkan peranan yang

penting untuk memastikan kedua-dua harga di pasaran tunai dan pasaran niaga hadapan I t ~ _ bullbull~ -~~

adalah sejajar Perdagangan arbitraj yang aktif dapat mem~t~1iarga kontralc-kontrak

niaga adalah betul dan adil supaya objektif-kecekapan harga akan dipenuhi Kajian ini akan

memberi tumpuan ke atas pemeriksaan perbezaan antara harga sebenar kontrak niaga

hadapan indeks saham Kuala Lumpur (FKLI)middot di pasaran deng~ harga yang sepatutnyavi I I f

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apabila dinilai dengan menggunakan kaedah cost of carry Kajian ini juga menguji

kewujudan peluang arbitraj selepas mengambil pertimbangan tentang kos transaksi Di

samping itu kertas ini juga cuba untuk menentukan sarna ada kecekapan harga di pasaran niaga hadapln indeks saham di Malaysia telah meningkat sepanjang masa Keputusan

daripada kajian tersebut menunjukkan bahawa kejadian salah harga antara harga sebenar

dengan harga teori berlaku dengan kerap dan be~erusan Selepas mengambil pertimbangan

tentang kos urusniaga beberapa kejadian salah harga yang melebihi batasan tanpa arbitrage

~ masih dapat diperhatikan lni menunjukkan bahawa peluang arbitraj masih wujud untuk

pedagang yang menghadapi kos transaksi yang lebih rendah Dari segi kecekapan harga

pasaran niaga hadapan memperolehi prestasi yang lebih baik selepas krisis subprime 2008

ketika ekonomi sedang memasuki peringkat pemulihan

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ACKNOWLEDGEMENT

First of all I would like to express my deepest and most sincere gratitude to my project paper ~pervisor of the Faculty Economics and Business Assoc Prof Venus Liew

Khim Sen for continuously supporting me throughout the completion of project paper

period His patience and enthusiasm always motivafes me to write a good project paper In

addition his willingness to share his wide knowledge allows me to improve and gain more

knowledge each time we meet Without his guidance I would not able to complete my

project paper on time

Next I would like to thank my parents and family for giving me the encouragement

and financial support to pursue MBA With their support I am able to persevere and

eventually finish my project paper and coursework Finally I would like to thank all my

course mates for always being there and helping me whenever I faced with any obstacles or

difficulties in my study

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Pusat Khidmat Maklumat Akademik UNIVERSITI MALAYSIA SARAWAK

TABLE OF CONTENTS

Page

STATEMENT OF ORIGINALITY III

ABSTRACT IV

ABSTRAK VI

ACKNOWLEDGEMENTS Vlll

LIST OF TABLES Xl

LIST OF FIGURES Xll

LIST OF ABBREVIATIONS Xlll

CHAPTER 1 INTRODUCTION

11 Introduction 1

12 Background of Study 6

13 Problem Statement 10

14 Research Question 11

15 Research Objectives 11

16 Significance of Study 12

17 Organization of Study 13

CHAPTER 2 LITERATURE REVIEW

21 Introduction 14

22 The Stock Index Futures Pricing Model in a Perfect Market (No 16

Transaction Cost)

23 The Cost of Carry Model in an Imperfect Market bull - 21

231 Difficulty ofTrad~g th~ u~d~rrYimiddot~glnaex~ask~ ~i 4middot 22 bull

232 Regulatory Restrictions and Barriers -shy 24

233 Transaction Costs 28

234 Stochastic Interest Rate 33

235 Tax and Tax Timing Option 33

ix

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236 Dividend Misspecification 34

24 Market Efficiency and Relationship between Stock Futures Index 35

and Cash Price Index

CHAPTER ~ RESEARCH METHODOLOGY

31 Introduction 38

32 Data 38

33 Methodology 39

33 1 Arbitrage Opportunities under Cost of Carry Model 39

332 Constructing the Arbitrage-Free Boundary 42

333 Mispricing of FKLI Futures Contract in Malaysia Futures 45

Market

CHAPTER 4 RESULTS AND DISCUSSION

41 Arbitrage Opportunities Under Simple Cost of Carry Model 46

42 Arbitrage Opportunities after Transaction Costs 53

43 Pricing Efficiency in Malaysia Stocks Index Futures (FKLI) Market 56

CHAPTER 5 CONCLUSION

51 Introduction 61

52 Major Findings of Study 62

53 Implication and Recommendation of Study 63

REFERENCES 64

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List of Tables Page

Table 11 Specifications of FKLI futures contract 8

Table 31 bommissions on Trading of Stocks and Futures Contracts 43

43

Table 41 Average monthly mispricing of the FKLI futures contracts 52

Table 42 Arbitrage Opportunities under Differe~t Level of Transaction 55

Costs

Table 43 Standard error between the actual closing price and 58

theoretical price

Table 44 Summary of regression analysis between actual and 60

theoretical price

Table 32 Total Transaction Costs Involved in Index Arbitrage

bull I

xi I I

List of Figures Page

Figure 11 Historical Daily Price Trend for Spot Month FKLI Futures 9

Contract Figure 41 Plots of Futures Premium from Jan 2001 to Dec 2010 50

Figure 42 Distribution of the FKLI contracts premium 51

Figure 43 Plots of standard error between the ackl futures price and 58

theoretical price

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List of Abbreviations

8MD Bursa Malaysia Derivatives Berhad

FBMKLCI FTSE Bursa Malaysia Kuala Lumpur Composite Index

FKLI FTSE Bursa Malaysia KLCI Futures

KLCI Kuala Lumpur Composite Index

KLOFFE Kuala Lumpur Options amp Financi~ Futures Exchange

MDEX Malaysian Derivatives Exchange Berhad

SampPSOO Standard and Poors 500 Index ~

SPDR Standard and Poors Depository Receipt

ETF Exchange Traded Fund

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CHAPTER 1

INTRODUCTION

11 Introduction

The finan~ial world has witnessed more and more attention in the area of

derivative financial instruments in the preceding years Derivatives have gained

reputation and popularity to become the proven form ~frisk management tools Amidst

the few derivatives instruments futures are among the measures that have been widely

used by corporations as a way of protection against unpredictable outcomes of the

markets Futures markets are derivatives markets that exist due to the existence of cash

market The futures markets plays a key role in managing risks related to the

adjustment in price volatility of some assets as well as to provide the opportunities for

speculators (Normas Izani Rasidah amp Saiful 2012)

Futures market was originated from commodities trading especially for

agricultural products A futures contract is defmed as the agreement between two

parties which are the seller and the buyer who agreed to purchase or sen a certain

product The contract states all the details of the transaction such as the agreed quantity

price and the delivery of the product on a predetermined date Both parties have the

responsibilities and obligations to carry outthe ~lt~~~1saction at the maturity date - middot ~ r- ~ t f gtlO p

Nowadays futures market is more popular and widely used in financial sector

- _

Various types of equity and financial derivatives are offered by the futures market in

order to facilitate the trading These derivative products have a wide coverage which

includes currency interbank offer rate government securities ~ock indices and etc ~ t ) -1

1

The futures market is mainly made up by 3 types of market players who are known as

hedgers speculators and arbitrageurs

Hedger is usually a real investor who has taken a position in cash market He uses

futures as insuQince to hedge his portfolio risk in order to minimize his loss if

something happen out of his expectation Hedging refers to a position established in

one market in an attempt to offset exposure to pri(4e fluctuations in the opposite

position in another market with the goal of minimizing ones exposure to unwanted

risk For example fund managers are perpetually with stocks in hand therefore their

risk exposure to the market would be enhanced in declining markets A fund manager

expects that in two months time the share prices will appreciate However he is

worried that unforeseen events may cause prices to decline prior to the time he would

sell his stocks He chooses to trade on BMD and hedges his position by selling the

forward FKLI contract In doing so he haS effectively agreed to lock-in his future

selling price today for a contract that will expire in two months time

Besides hedging FKLI is also used for arbitraging by arbitrageurs When

derivatives are trading above and below their theoretical fair value it is possible to

undertake arbitrage strategies by buying or selling the derivatives and simultaneously

selling or purchasing the underlying st~ks For example the fund manager realizes t- fi~ bull r-~ bull

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that the correlation prices of the cash market and the FKLI market has deviated from bull

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its usual spreads and that the FKLI is trading at a premium to the cash market

Arbitrage can take place by selling FKLI and buying the underlying shares in the

equity market The position will be liquidated later once the spread o(the prices it tmiddot

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between both markets return to it fair value

However trading of futures contracts by speculators are just like a gambling

activity They are not planning to taking delivery but merely expecting to earn profit

from the differqtce of prices by buying the contract with lower price and selling it with

higher price (Chance amp Brooks 2010) They will observe the trading patterns and post

data on reactions to market announcements to make estimate on possible bullish or

bearish trends For example the fund manger expects a spike up in prices in

anticipation of an increase in buying activities by foreign funds based on the positive

economic data of the country It naturally will increase its exposure and may purchase

stocks and FKLJ simultaneously to maximize its buylong portfolio position

As mentioned earlier futures market is viewed as a hedging tool by the market

players in order to minimize the risk exposure in cash market when there is adverse

price change in the market Prior to 198~ investors in stock market are having

difficulties in controlling their market risk With the existence of stock indices futures

contract investors are now having a better control in managing their risk without

changing their portfolio composition Due to the low transaction cost involved

investors favor to use stock index futures as a hedging tool This has been proven by

the drastic growth in the futures contrac~ tra9ing volume over the few decades (Gosh bull ~~ middot~i middot

1993)

In order to be a good hedging tool hedgi~g effectiveness is one the important

criteria to measure the perfonnance of the futures contract It implies the accuracy of

the futures contract to reflect its underlying market position Ther~for~pricing of the ~ 1 -

3

futures contract is very crucial because it will affect the hedging ability and

performance of a future contract The futures contracts should be priced under an

efficient mechanism to minimize the possibility of mispricing According to Merrick

(1988) misprJcing of futures contract has 3 implications on hedging First when there

is mispricing on the contract hedging will not be riskless if the hedger does not hold

the contract until its maturity date Under the efficient pricing mechanism the return

on a future~ash hedge will purely depend on the relative movement of the futures

price versus its spot price However the existence of mispricing will include a

stochastic component into the consideration Second if there is a correlation between

mispricing and futures return the hedge ratios calculated may not fulfill the variance

minimization rule Third mispricing also has impact on the cost of hedging In general

if the futures contract is overpriced in the first place a short term long cash hedge

gains more than its fair return On the contrary the gain will be lesser than fair returns

if the contract is underpriced

Despite futures contracts and its underlying are traded in different markets the

price movements in two markets have to be in line As the futures contract approaching

its maturity date its price shall gradually converge to its underlying spot price

prevailing in cash market The diffetence be~een the spot price of the underlying ~ bull ~ r-~ bull

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instrument and price of the futures contract is known as basis It is the net cost of

carrying the futures contract to the maturity date For financial futures the financing

cost for the margin requirement is the primary component of the basis and equity

based futures will have to factor in the dividends receivabl~ by pn 9~er of physical ~t bull I

4

Pusat Khidmat Maklumat Akademik UNIVERSm MALAYSIA SARAWAK

stocks (Shahabudin 2006)

Basis can be illustrated from the simple mathematical fonnula as

B=F-S

where B = qasis

F = Futures Price

S = Spot Price

IfF is greater than S then the basis is positive and the futures contract is traded at

a premium On the other hand if S is greater than F it shows a negative basis and the

futures contract is traded at a discount

Price convergence model indicates that price discrepancies between the cash

market and futures market should not last long An effective arbitrage activity is vital

to make sure prices in both markets are moving in line In simple words arbitrage is

the simultaneous purchase and sale of a security in two different markets It is a trade

that profits by exploiting price differences which is also considered as risk-free profits

Arbitrage exists due to market inefficiencies where there is price deviation between

futures market and cash market Arbitrageurs create a mechanism to ensure that prices

do not deviate substantially from its fair price for a long period of time If they fail to

do so it will have a great impact on h~ging perfonnance Therefore ifarbitrage is not - ~ bull - ~ middot middot~ ~i bullmiddot

effective futures market will not be a good hedging tool for the investor

(Shahabudin 2006)

I

5

12 Background of Study

Before the introduction of Kuala Lumpur Stock Exchange Composite Index

Futures (FKLI) on 15 December 1995 investors in Malaysia have no other alternatives

to manage theiryisk In order to control the risk of their investment portfolio they need

to diversify their investment portfolio When Kuala Lumpur Options amp Financial

Futures Exchange (KLOFFE) started trading the futvres in Malaysia it provides a

better way for the investors to mitigate their market risk without changing their

portfolio content Moreover the existence of the futures contracts facilitates their

investment strategy by reducing the necessity of reviewing and rearranging their

portfolio which incurred a high transaction cost (pok amp Poshakwale 2004) Nowadays

the FKLI is traded under Bursa Malaysia Derivatives Berhad (BMD)

The underlying asset of FKLI futures is Kuala Lumpur Composite Index (KLCI)

which was initially made up of 100 most actively traded stocks from approximately

500 to 650 companies listed in the Main Board of Bursa Malaysia The KLCI is a

market value weighted index The index is one of the most widely followed by the

investors because KLCI represents the overall performance of the stocks listed in

Bursa Malaysia The index has generally been accepted as the local stock market

barometer The KLCI which was intrOjiu~ in 1986 is to serve as a performance t 1 bullbull- ~ bull ~i

indicator ofour stock market as well as our economy as a whole (Zulkamain amp Sofian

- ~ 201 2)

In order to ensure KLC remains as a robust performance indicator for the stock

market and economy as well as strengthen its linkage with international market Bursa J i tmiddot I

6

Malaysia has partnered with FTSE to integrate the KLCI with an internationally

accepted index calculation methodology The main purpose of employing this

methodology is to provide a more investable tradable and transparently managed

index to trad-s and market players The enhanced index is known as FTSE Bursa

Malaysia KLCI It has been implemented on 6th July 2009 In contrast with KLCI the

FTSE Bursa Malaysia KLCI only consists of 30 lalYfst companies listed on the main

board of Bursa Malaysia However FTSE Bursa Malaysia KLCI maintains the

continuity of the KLCI index value therefore preserves the historical movements of

Malaysian stock market (Zulkarnain amp Sofian 2012)

Meanwhile FKLI is basically the futures contract of the overall perfonnance of

the Bursa Malaysia and its underlying instrument is FTSE Bursa Malaysia KLCI The

stock indices are traded in the futures exchange where it is basically a market for

traders to trade futures contracts (Zulkarnain amp Sofian 2012) The FKLI is a cash

settled contract and is actively used by both the institutional and retail investors in their

respective trading portfolios It simply means that there is no more physical delivery of

the KLCI shares at the maturity date The transaction will only involve the transfer of

cash which amount equals to the difference between the futures price and the spot

price at the maturity date (Mohamad IL HflSsa~ 2000) Three types of contracts are It-~ bull bull - ~~ rr ~ iiamp

traded in futures market at each point oftime It includes spot month contracts the next

~

month contract and the next two calendar quarterly months The cash value of a futures

contract is depending on the KLCI index point Each point i$ equal to RMSO and the

minimum price fluctuation is RM25 which represents OS ~ints~hallge in index On t-f middot ) ~ bull

7

the fmal trading day which is the last business day in the month the actual index point

will be rounded to the nearest 05 index point to detennine the final settlement

(BursaMalaysia 2011) Table 11 is the summary of the specifications of FKLI futures

Fieure 11 sJiows the historical daily price trend for spot month FKLI futures contract

from the period Jan 200 1 to Dec 2010

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Contract Cod~ FKLI+ Contract Instmmmt+

I FfSE Bursa Malaysia KualaLumpur Composite Index (FBM KLCI~

Contract Siz~ FBM KLCI multiplied by RM5Q+J Minimum Price Fluctuation +

05 index point valued at RM25

Daily Price Limits 20~o per trading session for the respective contract month except for the spot month coDlIact There shall be no price limits for the second month contract for the final five Business Days before expiration

Contract Months Spot month the next month and the next two calendar quanedy months The ea1enciu quarterly months ue MMeh June September and December+

Trading Hours+ First trading session Malaysian 845 am to 1245 pm Second trading session Malaysian 230 pm to 515 pm

FmalTIading Day The last Business Day of the contract month Fmal Sdtlemmt Cash settlement based on the Final Settlement Valu~

Fmal Settlement Va1u~

The final settlement value shall be the average value rounded to the nearest 05 of an index point (values of 025 or 075 and above being rounded upwards) taken at every 15 seconds or at

such intervals as may be determined by the Exchange from time to time from 34530 pm to 44515 pm plus one value after 500 pm oftht FB~ IqCI on the Final Trading Day excepting the 3 highest and 310westva)~es-middotmiddot middot ~~ middotmiddot~ ~I bullbull middot

Speculative PositionLimit

Maximum number if net long or net shon positions to beheld I 10000 contracts for allmonth combinedgt

Source Bursa Malaysia Official Website

Table 11 Specifications ofFKLI futures contract I I

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pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

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020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10

Figure 11 Historical Daily Price Trend for Spot Month FKLI Futures Contract

13 Problem Statement

As hedging effectiveness of the contracts is the main factor that breaking down the

success future contracts many researchers have made substantia immersion into this

subject topic (~hnston amp McConnell 1989) Researchers are always studying how

far hedgers are willing to go in order to cut down their cash price risk by employing

futures contracts Nevertheless the hedging effectiven~s ofa futures contract is highly

dependent on the magnitude of which the contract can emulate the underlying market

precisely Hence hedging ability relies strictly on the pricing of the futures itself

According to the cost of carry model the futures price should equal to the cash

price of its underlying asset and transaction costs As a result arbitrageurs will always

try to enter the markets and at the same time buy the cheaper cash asset and sell the

futures contract with the prevailing higher price when the arbitrage profit is higher than

risk-free return As mentioned earlier arbitrage opportunities are available when the

actual futures prices deviate from its fair theoretical price and the difference must be

greater than the transaction cost involved in the arbitrage process These responses will

push the futures prices to get properly regulated and even up with its fair price

Without an efficient arbitrage the futures price can digress greatly from its fair price

causing hedgers dislike to employing futpres p1a~et in the aftermath due to its meager ~ ~ ~ -bullbull~ ~ middot ~ -=i f middot middotmiddot

hedging results and ambivalence of the pricing process (Mohamad amp Hassan 2000) ~ _

As discussed above the accuracy of the futures contracts pricing will have a direct

effect on investors hedging strategies and the arbitrage profit llte main area of concern

of the study is targeted on the pricing efficiency of the Malaysia ~~oc~ index futures bull ~ f I bull -1 - bull bull

10

Before this many empirical results have shown the presence of significant and ongoing

price deviations in the stock index futures prices from its fair prices namely in the

futures markets in developing countries Among these countries is the persistent

undergoing foupd in the Korean Stock index futures market Gay and Jung (1999)

suggest that these mispricing can be justified by applying substitute sets of transaction

cost and restrictions on short-sale faced by different gr~ups of investors

It is interesting to realize that such a persistent mispricing is encountered by other

~ developing markets such as Korea Question arises to dealing with the current trend in

Malaysia futures market as this is also one of the developing markets The pricing

efficiency of Malaysia futures market is examined by applying cost of carry model

Results will be analyzed in order to detennine whether Malaysia as a developing

market is having the same problem as other developing markets facing or it can as

perform efficient as a developed market

14 Research Questions

Among the questions from the issues discussed

1 Is the Malaysia futures market price~fficient over the test period

2 Does arbitrage opportunity exist in Malaysia FKLI futures market after taking

transaction cost into consideration

15 Research Objectives

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The general objective of this study is to identify the arbitrage opportunities and

pricing efficiency for the Kuala Lumpur Stock Exchange Composite Index Futures

(FKLI) i

11

Pusat 1lthidn at lbklumat Akadtmik UNIVERSm ~YSIA SARAWAK

PKHIDMAT MAKLUMAT AKADEMIK

1IIIIIIIIIiiiiilllllllili 1000246861



JASON JASMY KHONG

This project is submitted in partial fulfillment ofthe requirements for the degree of Corporate Master in Business Administration

t middot middot ~middotmiddot vr~bullbull

Faculty of Economics and Business UNlVERSITI MALAYSlASARAWAK

2013

J I II i I

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ABSTRACT



By

Jason Jasmy Khong


















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ABSTRAK



Jason Jasmy Khong


















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ACKNOWLEDGEMENT












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TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







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31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

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List of Tables Page



43



Costs


theoretical price


theoretical price


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CHAPTER 1

INTRODUCTION

11 Introduction

















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B=F-S

where B = qasis

F = Futures Price

S = Spot Price














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180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

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020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























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ABSTRACT



By

Jason Jasmy Khong


















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ABSTRAK



Jason Jasmy Khong


















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ACKNOWLEDGEMENT












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TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







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31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

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List of Tables Page



43



Costs


theoretical price


theoretical price


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theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

Imiddot

I

ABSTRACT



By

Jason Jasmy Khong


















~











shy

bull t

I ~

I V f

ABSTRAK



Jason Jasmy Khong


















tbullbull ~












bull t

t


ACKNOWLEDGEMENT












shy

viii t I II


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11











shy

bull t

I ~

I V f

ABSTRAK



Jason Jasmy Khong


















tbullbull ~












bull t

t


ACKNOWLEDGEMENT












shy

viii t I II


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

ABSTRAK



Jason Jasmy Khong


















tbullbull ~












bull t

t


ACKNOWLEDGEMENT












shy

viii t I II


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11












bull t

t


ACKNOWLEDGEMENT












shy

viii t I II


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

ACKNOWLEDGEMENT












shy

viii t I II


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11


TABLE OF CONTENTS

Page


ABSTRACT IV

ABSTRAK VI


LIST OF TABLES Xl

LIST OF FIGURES Xll



11 Introduction 1








21 Introduction 14


Transaction Cost)







ix

i tt bull (0 II I





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11





31 Introduction 38

32 Data 38

33 Methodology 39




Market






51 Introduction 61



REFERENCES 64

t~ i

_ ~


List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

List of Tables Page



43



Costs


theoretical price


theoretical price


bull I

xi I I






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11






theoretical price

xii I i ~ bull t jj

I











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11











1 bull

xiii t J

~

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

CHAPTER 1

INTRODUCTION

11 Introduction

















- _




1



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11



















bull If ~ i 1


If




~

2



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11



















1993)




3
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11
























4




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11




B=F-S

where B = qasis

F = Futures Price

S = Spot Price














(Shahabudin 2006)

I

5




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11




















- ~ 201 2)



6




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11




















~




7






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11






middot

I middot

middot middot
















~

8

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11

middotbull J

pfutures ~

180000

1150000

140000

120000 ~

100000 10

- Plutures ~80000

60000

1 40000

1- ~

] 000 -

020101 0201(~ )2jOl03 02)1j04 020105 020106 020107 02010B 02(0109 0201(10
























10




















bull L- ~



(FKLI) i

11























10




















bull L- ~



(FKLI) i

11




















bull L- ~



(FKLI) i

11

ARBITRAGE OPPORTUNITIES MALAYSIA FUTURES MARKET … Opportunities and Pricing... · Corporate...

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Transcript of ARBITRAGE OPPORTUNITIES MALAYSIA FUTURES MARKET … Opportunities and Pricing... · Corporate...