Short selling restrictions and index futures pricing: Evidence from China

Andrew Lepone (), Jun Wen, Jin Boon Wong and Jin Young Yang

International Review of Economics & Finance, 2019, vol. 61, issue C, 179-187

Abstract: 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.

Keywords: Short-selling restrictions; CSI 300 futures; Index arbitrage (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:61:y:2019:i:c:p:179-187

DOI: 10.1016/j.iref.2019.02.002

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