The effect of trading futures on short sale constraints

Robert Jarrow (), Philip Protter and Sergio Pulido ()
Additional contact information
Philip Protter: Columbia University [New York]
Sergio Pulido: CMU - Carnegie Mellon University [Pittsburgh]

Post-Print from HAL

Abstract: It is commonly believed that the trading of futures on a commodity enables the market to overcome short selling constraints on the spot commodity itself. This belief is embedded in the notion that trading strategies involving futures contracts enable traders to replicate the payoffs as if they were short the spot commodity. The purpose of this paper is to investigate this common belief in a general arbitrage-free semimartingale financial model with trading in futures and a short selling prohibition on the spot commodity. We show via various examples that, in general, this common belief is incorrect. Furthermore, we provide a set of sufficient conditions, albeit very restrictive, under which the common belief is true.

Keywords: Short sale constraints; futures contracts; futures prices; complete markets; martingale representation; supermartingale measures; overpricing hypothesis; bubbles (search for similar items in EconPapers)
Date: 2015-04
Note: View the original document on HAL open archive server: https://hal.science/hal-02265269v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Mathematical Finance, 2015, 25 (2), pp.311-338. ⟨10.1111/mafi.12013⟩

Downloads: (external link)
https://hal.science/hal-02265269v1/document (application/pdf)

Related works:
Journal Article: THE EFFECT OF TRADING FUTURES ON SHORT SALE CONSTRAINTS (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02265269

DOI: 10.1111/mafi.12013

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().