Title

Short selling restrictions and index futures pricing: Evidence from China

Author First name, Last name, Institution

Andrew Lepone
Jun Wen
Jin Boon Wong
Jin Young Yang

Document Type

Article

Source of Publication

International Review of Economics and Finance

Publication Date

5-1-2019

Abstract

© 2019 Elsevier Inc. This study examines the impact of short-selling restrictions on futures mispricing (relative to various benchmarks) in the market for CSI 300 index futures. In mid-2015, Chinese regulators imposed a new short-selling restriction in an attempt to curb excessive stock market volatility. Results show that futures under-pricing occurs more frequently at the transaction cost levels, ranging from 0 to 1.5%, while futures over-pricing occurs less frequently at the transaction cost levels from 0 to 0.75% under the new short sale rule. The results support the hypothesis that short-selling restrictions impose costs to the arbitrage trading strategies by arbitrageurs who do not own the underlying assets in the presence of futures under-pricing (or over-pricing of the underlying assets), resulting in more persistent futures under-pricing.

ISSN

1059-0560

Publisher

Elsevier Inc.

Volume

61

First Page

179

Last Page

187

Disciplines

Business

Keywords

CSI 300 futures, Index arbitrage, Short-selling restrictions

Scopus ID

85062228522

Indexed in Scopus

yes

Open Access

no

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