Explicit Versus Implicit Contracts: The Case of Diff and Cross Futures

Posted: 22 Dec 1998

See all articles by Ahmet K Karagozoglu

Ahmet K Karagozoglu

Hofstra University, Zarb School of Business; New York University (NYU) - Volatility and Risk Institute

Abstract

This paper investigates the potential success of an explicit futures contract when an implicit one, which can duplicate it, exists. It is hypothesized that the success of the explicit futures contract depends on its value-added being greater than that of its implicit counterpart given that sufficient hedging demand exists for it. Following a discussion of value-added analysis, hedging effectiveness of the Euro-rate Differential (DIFF), the Currency Cross-rate (CROSS) futures contracts, and their implicit counterparts are calculated and tests of relative hedging effectiveness of these contracts are performed. Test results support the hypothesis of the paper and their implications for new futures contract development are discussed.

JEL Classification: G13, G15

Suggested Citation

Karagozoglu, Ahmet K, Explicit Versus Implicit Contracts: The Case of Diff and Cross Futures. Available at SSRN: https://ssrn.com/abstract=142159

Ahmet K Karagozoglu (Contact Author)

Hofstra University, Zarb School of Business ( email )

Department of Finance
148 Hofstra University
Hempstead, NY 11549-1480
United States
(516) 463-5701 (Phone)
(718) 701-8331 (Fax)

HOME PAGE: http://sites.hofstra.edu/ahmet-karagozoglu

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
698
PlumX Metrics