Short-Sale Constraints and Efficiency of the Spot-Futures Dynamics

33 Pages Posted: 1 Nov 2011 Last revised: 30 Sep 2013

See all articles by Dennis Philip

Dennis Philip

Durham University Business School

David G. McMillan

University of Stirling

Date Written: February 1, 2012


This paper studies the spot and futures cross-market efficiency implications of the regulatory short-selling constraints imposed during the 2008-2009 financial crisis. We find the equilibrium position for the basis during the ban is below that normally seen, with the spot price higher relative to the futures price. This suggests that holding the spot was more valuable than holding the futures during the ban period. Further, we find the speed of adjustment has slowed down and in some cases become statistically insignificant, suggesting arbitrage is less effective during the ban period. The results presented here have implications for regulators and traders regarding the efficiency of these markets during a short-sale ban.

Keywords: Short-sale constraints, Short-selling, Arbitrage, Mispricing

JEL Classification: G13, G14

Suggested Citation

Philip, Dennis and McMillan, David G., Short-Sale Constraints and Efficiency of the Spot-Futures Dynamics (February 1, 2012). International Review of Financial Analysis, Vol. 24, 2012, Available at SSRN: or

Dennis Philip (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Mill Hill Lane
Durham, DH13LB
United Kingdom

David G. McMillan

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

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