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Are tightened trading rules always bad? Evidence from the Chinese index futures market

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journal contribution
posted on 12.05.2022, 04:12 authored by Hai LinHai Lin, Y Wang
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.

History

Preferred citation

Lin, H. & Wang, Y. (2018). Are tightened trading rules always bad? Evidence from the Chinese index futures market. Quantitative Finance, 18(9), 1-18. https://doi.org/10.1080/14697688.2018.1445586

Journal title

Quantitative Finance

Volume

18

Issue

9

Publication date

01/01/2018

Pagination

1-18

Publisher

Informa UK Limited

Publication status

Published

Contribution type

Article

Online publication date

24/04/2018

ISSN

1469-7688

eISSN

1469-7696

Language

en