What are Stock Index Futures?
The stock index follows the value of a hypothetical portfolio. Such
indices are the S & P500 , the NASDAQ , the FTSE100 or the
NIKKEI225 . Most of these indices are portfolios weighted according to
the market capitalization of their companies. An exception is the
NIKKEI225 , where the weighting is done according to the prices.
Dividend payments and other incomes are not included in the normal
indices, the total return index includes dividend payments and assumes
that they are reinvested in the market portfolio. Futures contracts on
indices are settled in cash, not by delivering all stocks underlying
Since the stock index consists of just a
hypothetical portfolio, in theory all investors are able to replicate
it. Therefore the underlying asset of the futures is indeed a
marketable asset. In most countries, in particular in the U.S., the
stock index is viewed as an asset that pays a continuous dividend
yield. In other countries companies tend to pay dividends at around the
same time in the year, then the index can be treated as an asset that
provides a known income. Note here that future dividends are announced
in advance hence the known income assumption.