Risk of inefficiency on the Chinese index futures market

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

3 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)1571-1585
Journal / PublicationKybernetes
Volume41
Issue number10
Publication statusPublished - Oct 2012

Abstract

Purpose: The purpose of this paper is to examine the risk of inefficiency of China's stock index futures market by investigating the opportunity and profitability of exchange-traded fund (ETF) arbitrage. The explanation of behavioral risk to market efficiency is examined. Design/methodology/approach: Based on cost-of-carry model, some assumptions about market efficiency were examined, and statistical tests were implemented to support the findings. Findings: In China, borrowing and lending interest rates are quite different; dividends are small and paid in an irregular manner; and short sale cannot be used in arbitrage by all investors. It is found that the Chinese index futures market is far from efficient. Originality/value: With reference to the empirical study, this is believed to be the first application of behavioral study to the study of market efficiency. The analysis of the statistics about Chinese index futures market and the algorithm parameters are very valuable for in-depth understanding of the emerging markets. © Emerald Group Publishing Limited.

Research Area(s)

  • China, Cost-of-carry model, Futures markets, Index arbitrage, Pricing efficiency, Stock market

Citation Format(s)

Risk of inefficiency on the Chinese index futures market. / Ma, Chaoqun; Liu, Lan; Wang, Junbo et al.
In: Kybernetes, Vol. 41, No. 10, 10.2012, p. 1571-1585.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review