The Valuation of Equity Futures on the Tokyo Stock Exchange: 1920–1923


  • The authors would like to thank Glenn Boyle, Fabio Braggion, Neil Galpin, Marc Henri, Ralph Koijen, Tetsuji Okazaki, and participants at the New Zealand Finance Colloquium, Asian FMA conference, the University of Otago finance seminar, and the Université de Montréal Brown Bag Lunch for useful comments and advice. An anonymous referee and the editor (Robert Webb) made helpful suggestions. Momoko Inui provided excellent research assistance.

Correspondence author, Department of Finance, University of Melbourne, Level 12, 198 Berkeley Street, Parkville 3010, Victoria, Australia. Tel: +61 3 9035 6566, Fax: +61 3 8344 6914, e-mail:


The futures price of an asset should depend on the spot price of that asset, the interest rate, cash flows during the contract term, the convenience yield, and storage costs. Despite many tests of the spot–future relation for commodities in historical periods, there have been no tests of this historical relation for equities. We price single-stock equity futures on the Tokyo Stock Exchange between 1920 and 1923 and find that mispricing is considerably worse than in contemporary U.S. markets, after adjusting for (unavoidable) asynchronous data issues. The main cause of the mispricing is short-sales constraints, rather than investor naivety. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark