The lead-lag relation between spot and futures markets under different short-selling regimes

Li Jiang, Joseph K W FUNG, Louis T.W. Cheng*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    20 Citations (Scopus)

    Abstract

    We examine the lead-lag relation between index futures and the underlying index under three types of short-selling restrictions on stocks in Hong Kong. Our results indicate that lifting short-selling restrictions can enhance the informational efficiency of the stock market relative to the index futures. We also investigate the impact of two market characteristics, market conditions and the magnitude of mispricing on the lead-lag relations under different short-selling regimes. Our findings suggest that if we remove restrictions, the contemporaneous price relation between the futures and cash markets becomes stronger particularly in the falling market and when the cash market is relatively overpriced.

    Original languageEnglish
    Pages (from-to)63-88
    Number of pages26
    JournalFinancial Review
    Volume36
    Issue number3
    DOIs
    Publication statusPublished - Aug 2001

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • Index futures
    • Informational efficiency
    • Lead-lag relation
    • Short-selling
    • Spot market

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