The impact of trading restrictions and margin requirements on stock index futures

Jianqiang Hu, Tianxiang Wang, Wenwei Hu and Jun Tong

Journal of Futures Markets, 2020, vol. 40, issue 7, 1176-1191

Abstract: Stock index futures in Chinese market have consistently diverged from their theoretical values. In this paper, we try to provide some explanations by proposing an equilibrium model. Although the model itself does not provide analytical solutions, it enables us to conduct extensive numerical studies and compare them with our empirical results on two major Chinese market indices, CSI300 and SSE50. Our results show that the divergence of stock index futures prices from their theoretical values may be due to various trading and regulatory constraints, such as position limits and margin requirements, which play significant roles in Chinese market.

Date: 2020
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https://doi.org/10.1002/fut.22111

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