Original Research Article Stock Index Futures in China; Hushen 300 Index
Author(s)
Thian Cheng Lim , Xue Feng , Zhengjiang Hu ,
Download Full PDF Pages: 60-70 | Views: 448 | Downloads: 117 | DOI: 10.5281/zenodo.3402005
Abstract
This paper examines the arbitrage-induced in regimes (upper, inner and lower regime) price dynamics between Hushen 300 index spot and futures markets using a threshold cointegration analysis and Error Correction Model (ECM) on china stock market index.. The studies are carried out from 426 observations with samples selected from 04/16/2010 to 03/16/2012. We are interested to know what extent of mispricing would represent for profitable arbitrage opportunity. Futures prices would have a fluctuating effect within lower and upper thresholds by the factors of transaction costs and arbitrage risks, but no profitable arbitrage opportunities within this area.
Keywords
Chinese Stock; Index Futures Market; Intraday; Cointegration Analysis; Error Correction Model (ECM)
References
i. Balke, N.S.& Fomby, T.B. (1997). THRESHOLD COINTEGREATION. International Economic Review, 38 (3),627-645.
ii. Brenner, R.J., & Kroner, K.F. (1995). Cointegration and Testing the Unbiasedness Hypothesis in Financial Markets. The Journal of Financial and Quantitative Analysis, 30(1), 23-42.
iii. Cornell B., & French K.R. (1983a), The pricing of stock index futures, Journal of Futures Markets, 3, 1-14.
iv. Cornell B., & French K.R. (1983b), Taxes and the Pricing of Stock Index Futures. The Journal of Finance, XXXVIII.3, 675-649.
v. Cornell B., & Reinganum M. (1981). Forward and Futures Prices: Evidence from Foreign Exchange Markets, Journal of Finance. 36, 1035-1045.
vi. Cornell, B. (1985). Taxes and the pricing of stock index futures: Empirical results. Journal of Futures Markets. 5, 89-102.
vii. Cox, J.C., Ingersoll, J.E., & Ross, S.A. (1985). A theory of the term structure of interest rates. Econometrica, 53, 385-407.
viii. Catherine S. Forbes, Guyonne R. J. Kalb, Paul Kofman, (2011), "Bayesian Arbitrage Threshold Analysis", Journal of Business & Economic Statistics, Vol. 17, No.3, pp. 364-372.
ix. Elton, E., Gruber, M., & Rentzler, J. (1983). The Arbitrage Pricing Model and Returns on Assets Under Uncertain Inflation. The Journal of Finance, 38 (2), 525-537.
x. Engle, R.F. & Granger, C.W.J. (1987). Co-integration and error correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251-276.
xi. Hemler M. L., & Longstaff F. A. (1991). General equilibrium stock index futures prices: Thery and empitical evidence, Journal of Financial and Quantitative Analysis, 26, 61-86.
xii. http://www.chinastockdigest.com/articles/Investing-in-China-Stocks-Through-the-Hong-KongStock-Market.html.
xiii. Kamara, A. (1988). Market Trading Structures and Asset Pricing: Evidence from the TreasuryBill Markets. The Review of Financial Studies, 6 (4), 935-957.
xiv. MacKinlay, A.C., & Ramaswamy, K. (1998). Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices. Oxford Journals, 1(2), 137-158.
xv. Modest D. M., Sundaresan M., 1983, “The relationship between spot and futures prices in stock index futures markets: Some preliminary evidence”, Journal of Futures Markets. Vol. 3, pp. 15-42.
xvi. Richard S. F., & Sundaresan M. (1981). A continuous time equilibrium model of forward prices and futures prices in a multigood economy, Journal of Financial Economics, 9, 347-371.
xvii. Tsay, R.S. (1986). Nonlinearity Tests for Time Series. Biometrika , 73(2), 461-466
xviii. Tsay, R. (1989). Testing and Modeling Threshold Autoregression Process, Journal of the American Statistical Association, 84(405), 231-240.
xix. Wang, P.J. (2001). Financial Econometrics, Methods and Model.
xx. Yadav P. K., & Pope P.F. (1994). Stock index futures mispricing: Profit Opportunities or Risk Premia. Journal of Banking and Finance, 18, 921-954.
Cite this Article: