Manipulation Prevention and Hedging Effectiveness: Optimal Settlement Window Design for CSI 300 Stock Index Futures

Song Jun and Rui Luo ()

Emerging Markets Finance and Trade, 2013, vol. 49, issue 6, 52-66

Abstract: We empirically evaluate the current 120-minute settlement window for China Securities Index 300 Stock Index Futures. We assume that an exchange chooses the optimal settlement window to maximize its profit by increasing its revenue from trading volume and by curtailing its surveillance expenditure via designing contract specifications. Given that a longer settlement window may reduce the hedging effectiveness but result in cost savings, we find that the optimal settlement window is located between zero and forty minutes under varied unit investigation costs and suggest that it may be more appropriate to set a shorter settlement window.

Keywords: hedging effectiveness; manipulation risk; optimal settlement window (search for similar items in EconPapers)
Date: 2013
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