Download or read book The Impact of Trading Restrictions and Margin Requirements on Stock Index Futures written by Jianqiang Hu and published by . This book was released on 2018 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the assumption of no arbitrage opportunity, the price of stock index futures should be equal to the spot price of the underlying stock index, excluding capital costs, dividends, and trading costs. However, since stock index futures have been introduced to the Chinese market in 2010, their prices have consistently diverged from their theoretical values in a very significant way. By using an analytical model, we try to provide some explanations as to why this may happen. Our model shows that the divergence of stock index futures prices from their theoretical values may be due to various trading and regulatory constraints, such as position limits and margin requirements, which play significant roles in Chinese markets. This is also consistent with the common belief that the more restrictive trading and regulatory constraints are, the less liquidity and efficient financial markets are, hence the more likely it is that asset prices would deviate from their true values. Our empirical results on two major Chinese market indices, CSI300 and SSE50, validate the results obtained from our analytical model.