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Risk of inefficiency on the Chinese index futures market

Chaoqun Ma (School of Business Administration, Hunan University, Changsha, China)
Lan Liu (School of Business Administration, Hunan University, Changsha, China)
Junbo Wang (College of Business, City University of Hong Kong, Hong Kong, China)
Jing Chen (Department of Mathematics, The University of Alabama, Tuscaloosa, Alabama, USA)

Kybernetes

ISSN: 0368-492X

Article publication date: 12 October 2012

846

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.

Keywords

Citation

Ma, C., Liu, L., Wang, J. and Chen, J. (2012), "Risk of inefficiency on the Chinese index futures market", Kybernetes, Vol. 41 No. 10, pp. 1571-1585. https://doi.org/10.1108/03684921211276756

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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