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Measuring True Stock Index Value in the Presence of Infrequent Trading

Published online by Cambridge University Press:  06 April 2009

Esa Jokivuolle
Esa Jokivuolle
Affiliation:
Department of Finance, University of Illinois at Urbana-Champaign, Champaign, IL 61820, and Department of Economics, P.O. Box 54, FIN-00014, University of Helsinki, Finland.
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Abstract

Based on the Beveridge-Nelson (1981) decomposition of an ARIMA process, I present a measure of true stock index value that is not directly observable due to infrequent trading of stocks. The technique is illustrated with daily observations of the Russell 2000 index. This new measure might well prove useful in studies of lead-lag relationships between index derivatives and spot market and futures basis measurements.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 3 , September 1995 , pp. 455 - 464
Copyright
Copyright © School of Business Administration, University of Washington 1995

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