Does the Dividend Yield of a Stock Index Affect the Basis of Its Futures Contract?

Yes, the dividend yield significantly affects the basis of a stock index futures contract. Dividends are paid to the holders of the underlying stocks, but not to the holders of the futures contract.

Therefore, the futures price must be lower than the theoretical price calculated by the simple cost of carry model to compensate the futures buyer for the lost dividend income. The basis (Spot – Futures) will be higher (less negative) due to the dividend yield.