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Journal of Law and Financial Management - Volume 3 (1) June 2004

Volume 3, June 2004

Do Returns on Synthetic Portfolios Constructed from Stock Index Futures Deliver Capital Gains, Dividends and Franking Credits

By Alex Frino, Grant Wearin & Joel Fabre


Previous papers documenting the relationship between returns on stock index futures and stock indices typically ignore dividends1. This appears to leave open the issue of whether the return on a synthetic position constructed using stock index futures and a risk free asset efficiently delivers the value of dividends. This paper proves mathematically that the returns on synthetic positions using such contracts should deliver capital gains, cash dividends and the value of franking credits derived by arbitrageurs. Empirical evidence consistent with this proposition is provided, using a sample of data for the SPI 200 contract trading on the Sydney Futures Exchange. Interestingly, the evidence suggests that franking credits are priced into stock index futures contracts, despite the introduction of the 45-day rule which seemingly would appear to prevent this.

A Note on Autocorrelations In Asset Returns Due to Market Overreaction

By Subhrendu Rath


Using the partial price adjustment model of Amihud and Mendelson (1987), it is shown that overreaction in asset returns will produce positive and negative autocorrelations. Market overreaction research use higher order negative correlations to detect market overreaction or trading noise. A proper procedure to detect market overreaction is to use tests for alternated correlation patterns.

Superannuation and the Ageing Myth

By Rami Hanegbi and Professor Mirko Bagaric


The ageing population rationale, which was the central plank underpinning compulsory superannuation, is flawed. The increase in individual wealth in the future more than compensates for the increasing number of older people. In addition to this, compulsory superannuation contributes to the ageing population problem because it provides less money to couples who wish to raise children and hence provides a disincentive for people to have children. The most appropriate method for dealing with the ageing problem is to encourage people to work longer - not because they need the money, but because it is good for their psyche and self-worth.