Abstract
Based on 1 minute high frequency data, this paper constructs no-arbitrage band for CSI300 index futures, and empirically studies the futures-spot arbitrage. Furthermore, the mean reversion and its time effect are analyzed by ADF model for the first time in Chinese index futures market and a logit model is used to investigate the related factors of arbitrage opportunities. We find that CSI300 index futures have cash-and-carry arbitrage opportunities; the existence of mean reversion effect of index futures when arbitrage is absent; cash-and-carry arbitrage has a significant impact for mean reversion of the mispricing, while the reverse has insignificant effect. As for the time effect of mean reversion, it indicates that the time which arbitrage effect reversion most is mispricing shows 14 minutes later. The probability of arbitrage opportunities is positive correlated to first-order lagged of volume, and negative correlated to the volume; the time to expiration, the highest price and lowest price differences are also positive related to arbitrage opportunities.
Highlights
Since Chinese first index futures launched on China Financial Futures Exchange (CFFE), the trading volume jumped to the biggest among all futures
The mean reversion and its time effect are analyzed by ADF model for the first time in Chinese index futures market and a logit model is used to investigate the related factors of arbitrage opportunities
We find that CSI300 index futures have cash-and-carry arbitrage opportunities; the existence of mean reversion effect of index futures when arbitrage is absent; cash-and-carry arbitrage has a significant impact for mean reversion of the mispricing, while the reverse has insignificant effect
Summary
Since Chinese first index futures launched on China Financial Futures Exchange (CFFE), the trading volume jumped to the biggest among all futures. Arbitrageur will obtain profit by cash-and-carry arbitrage, which means they short index futures and long spot when futures price is above the upper limit of noarbitrage band, and wind the position of both on expiration day. Since profits cannot be obtained unless index futures return to no-arbitrage band, the research has been involved into mean reversion effect of index futures. Dwyer [30] regressed S & P500 index futures by Threshold Error Correction Model (TECM) and did impulse response, who found the futures’ price need 5 - 7 minutes to go back to no-arbitrage band. Based on high frequency data, this paper empirically researches the mean reversion and its time effect by ADF model for the first time in Chinese index futures. We explored some factors by a logit model which may influence arbitrage opportunities
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