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On contango, backwardation, and seasonality in index futures

Abd Wahab, Mohd Asraf and Mohamad, Azhar and Sifat, Imtiaz (2019) On contango, backwardation, and seasonality in index futures. The Journal of Private Equity, 22 (2). pp. 69-82. ISSN 1096-5572 E-ISSN 2168-8508

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The authors investigate contango and backwardation formations and seasonality traits in Malaysia over 22 years spanning 1995 to 2017. Employing graphical observations and statistical tests, contango and backwardation traits appear through market expectations, seasonality, cost of carry model predictions, and index volatility. Unit root, cointegration, and Granger causality tests are employed to assess the existence of long-term relationships between KLCI (cash/spot index) and FKLI (stock index futures) contracts and the direction of the causality relationship. The results are suggestive of cointegration between the futures price index and the spot index in Malaysia. Moreover, a long-run relationship exists between the two variables—a result of backwardation’s predictive ability to find cash market bottoms. Malaysian markets show backwardation in April to June and August, while December is consistently in contango and exhibits moderately high success in the use of a cost-of-carry model in predicting contango and backwardation.

Item Type: Article (Journal)
Additional Information: 3334/80163
Uncontrolled Keywords: Contango, backwardation, seasonality in index futures
Subjects: H Social Sciences > HG Finance
H Social Sciences > HG Finance > HG4001 Financial management. Business finance. Corporation finance.
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User: Dr Azhar Mohamad
Date Deposited: 25 Aug 2020 15:36
Last Modified: 25 Aug 2020 15:36
URI: http://irep.iium.edu.my/id/eprint/80163

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