Index futures mispricing: A global phenomenon? A comparative analysis of market dynamics

This study investigates the mispricing dynamics of index futures across global markets using Vector Autoregressive (VAR) and Autoregressive with Exogenous Variables (ARX) models. Analyzing daily data from 2006 to 2023 for 16 index futures spanning the Asia-Pacific, Europe, and the Americas, the study examines the roles of key market variables—futures volume, open interest, index returns, index volume, volatility, and time to maturity—in driving both raw mispricing and actionable mispricing (boundary violations). The results reveal significant persistence in mispricing and boundary violations, particularly in emerging markets like Nifty 50 and IBOVESPA. The findings underscore the critical influence of market-specific characteristics, including regulatory frameworks, transaction costs, and liquidity levels, in shaping mispricing behavior. This study provides a robust comparative analysis that offers valuable insights for investors, researchers, and policymakers aiming to understand and mitigate mispricing and enhance market efficiency in diverse global futures markets.