Calendar Spread Trading and the Efficiency of Australian Bank Accepted Bill Futures Market

This paper is concerned with the potential profit opportunities in trading calendar spreads of 90-day Bank Accepted Bill (BAB) futures contracts on the Sydney Futures Exchange (SFE) during the 1990s. It is shown that statistically significant gross profits can be generated by a naïve strategy for most of the considered holding periods ranging from 3 months to 18 months. However, after the deduction of generous transaction costs, the net profits are statistically significant only for the 6-month holding period returns. The implications of the profits produced by calendar spread trading methodology on the efficiency of the BAB futures market are also addressed. The empirical results reveal that the efficiency market hypothesis for the BAB futures market cannot be universally accepted in the 1990s.