Title: The short-selling restriction and the post-crisis financial futures market in China

Authors: Haoran Zhang

Addresses: Manhattan College, 4513 Manhattan College Parkway, Riverdale, NY 10471, USA

Abstract: The short-selling restriction set during the 2015 Chinese Financial Crisis affects the Chinese financial markets. However, since it was implemented through soft regulation, the restriction is invisible to many market participants. Without official statements about the restriction after the crisis, the short-selling volume is still low compared to the pre-crisis period, implying the short-selling restriction remains in effect. But the impact of the short-selling restriction on the financial futures market vanishes in 2017, indicating that the short-selling volume is big enough to maintain the spot-futures market's efficiency. Furthermore, three stock index futures are compared in terms of short-selling difficulties. The level of short-selling difficulties is positively related to the level of deviations from the cost-of-carry model, supporting that the short-selling restriction is the main driver of the deviations from the cost-of-carry equilibrium in China.

Keywords: Chinese futures market; short-selling restriction; stock index futures; China.

DOI: 10.1504/IJFMD.2023.133458

International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.3, pp.137 - 154

Received: 25 May 2022
Accepted: 20 Nov 2022
Published online: 15 Sep 2023 *

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