Short selling restrictions and index futures pricing: Evidence from China

Andrew Lepone, Jun Wen, Jin Boon Wong, Jin Young Yang

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


This study examines the impact of short-selling restrictions on futures mispricing (relative to various benchmarks) in the market for CSI 300 index futures. In mid-2015, Chinese regulators imposed a new short-selling restriction in an attempt to curb excessive stock market volatility. Results show that futures under-pricing occurs more frequently at the transaction cost levels, ranging from 0 to 1.5%, while futures over-pricing occurs less frequently at the transaction cost levels from 0 to 0.75% under the new short sale rule. The results support the hypothesis that short-selling restrictions impose costs to the arbitrage trading strategies by arbitrageurs who do not own the underlying assets in the presence of futures under-pricing (or over-pricing of the underlying assets), resulting in more persistent futures under-pricing.
Original languageEnglish
Pages (from-to)179-187
Number of pages9
JournalInternational Review of Economics and Finance
Publication statusPublished - 2019


  • Short-selling restrictions
  • CSI 300 futures
  • Index arbitrage


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