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Arbitrage trading and price discovery of the regular and mini Taiwan stock index futures

Yu‐Lun Chen, Yen‐Hsien Lee, Robin K. Chou and Ya‐Kai Chang

Journal of Futures Markets, 2021, vol. 41, issue 6, 926-948

Abstract: We investigate the contributions of the Taiwan regular and mini index futures to price discovery. We find that the regular futures provide more price discovery, which is inconsistent with the findings for the US futures markets. This dominance of regular futures became relatively weaker after the introduction of the standard portfolio analysis of the risk margin system because of more arbitrage trades mainly executed by institutional investors. We show the effect of the introduction of an integrated margin system on the price‐discovery processes and efficiencies for futures with the same underlying asset but different contract sizes.

Date: 2021
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