Journal of Indexes Europe, January/February 2012
11 Pages Posted: 3 Nov 2011 Last revised: 7 Feb 2012
Date Written: May 26, 2011
Financial professionals and scholars generally agree that the two most important transaction types found in global stock futures markets are arbitrage and calendar spreads. Of these it is arbitrage that is the more important, especially in newly developing futures markets such as in China and India. It is also widely agreed that the successful growth of futures exchanges rests heavily upon sustaining a meaningful volume of daily arbitrage transactions. Yet very little is written in detail about the important practical elements of implementing these crucial trades, knowledge of which regulators, investors and exchange officials must have as they seek to develop and participate in efficient equity markets.
Using recent CSI 300 futures data this article seeks to explore specific details of stock index arbitrage in China's new CSI 300 stock index futures market with a focus on ETFs vs. index futures. A knowledge of the requirements for successful arbitrage in this market can suggest to regulators and exchanges steps necessary for making market improvements that can attract and retain foreign and domestic professional investors. Knowledge of the practical means for indentifying and implementing profitable arbitrage can encourage the professional growth of this essential activity that improves market liquidity and stability. Finally, knowledge that index arbitrage is serving to keep futures prices near to their economic fair value can also provide investors and hedgers the assurance they need to comfortably increase their participation in China's rapidly developing stock market.
Keywords: stock index futures, china, ETF, arbitrage, CSI 300
JEL Classification: G13, G15
Suggested Citation: Suggested Citation
Slivka, Ronald T. and Zhang, Yikai and Zhang, Wenwen, Index Arbitrage in China (May 26, 2011). Journal of Indexes Europe, January/February 2012. Available at SSRN: https://ssrn.com/abstract=1953508
By Meb Faber
By Meb Faber