If there are no restrictions on short selling, no margin or performance bond requirements, no transactions costs and no taxes, then the prices of a three-month and a six-month futures contract in a market index will be determined by the price of the index and by the three-month and six-month rates of interest, respectively. The two contracts will possess identical market index hedging characteristics and will differ only inasmuch as the six-month contract possesses additional hedging potential with respect to the three-month forward interest rate. Consequently, the six-month contract can be duplicated by a combination of the three-month contract and a futures contract in the three-month forward interest rate.
Multiple contracts do not expand the hedging potential of the futures market and may, in fact, result in reduced marketability for each contract. On the other hand, transactions costs encourage overlapping contracts and taxes create a need for contracts that extend into the next year. Two one-year contracts with delivery dates in, say, January and July would satisfy these requirements.