Are tightened trading rules always bad? Evidence from the Chinese index futures market |
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Authors: | Hai Lin |
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Institution: | School of Economics and Finance, Victoria University of Wellington , Wellington, New Zealand. |
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Abstract: | This paper investigates the impact of tightened trading rules on the market efficiency and price discovery function of the Chinese stock index futures in 2015. The market efficiency and the price discovery of Chinese stock index futures do not deteriorate after these rule changes. Using variance ratio and spectral shape tests, we find that the Chinese index futures market becomes even more efficient after the tightened rules came into effect. Furthermore, by employing Schwarz and Szakmary J. Futures Markets, 1994, 14(2), 147–167] and Hasbrouck J. Finance, 1995, 50(4), 1175–1199] price discovery measures, we find that the price discovery function, to some extent, becomes better. This finding is consistent with Stein J. Finance, 2009, 64(4), 1517–1548], who documents that regulations on leverage can be helpful in a bad market state, and Zhu Rev. Financ. Stud., 2014, 27(3), 747–789.], who finds that price discovery can be improved with reduced liquidity. It also suggests that the new rules may effectively regulate the manipulation behaviour of the Chinese stock index futures market during a bad market state, and then positively affect its market efficiency and price discovery function. |
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Keywords: | Tightened trading rules Index futures Market efficiency Price discovery Manipulation |
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