Short selling restrictions and index futures pricing: Evidence from China

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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