Restrictions on Short-Selling and Spot-Futures Dynamics |
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Authors: | Joseph K W Fung & Li Jiang |
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Institution: | Department of Finance and Decision Sciences, Hong Kong Baptist University |
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Abstract: | Recent lifting of short-sales constraints in Hong Kong provides an important opportunity to examine whether such restrictions affect the dynamic relationship between index futures and its underlying spot. The results show that the two prices have become more closely integrated without the restrictions. Adjustments to long-run equilibrium are accomplished more through index futures; however, the spot index has played an increasingly more important role in the lead-lag relationship after the deregulation. Market conditions, spot trading volumes, relative futures trading volumes and institutional participation also affect the dynamic relationship. |
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Keywords: | index futures short-sales restrictions error-correction model lead-lag relationship |
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