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Futures mispricing, order imbalance, and short-selling constraints

  • Lin, Emily
  • Lee, Cheng-Few
  • Wang, Kehluh
Registered author(s):

    The aim of the research is to determine how the lifting of price restrictions on short sales and security-lending sales affects market efficiency, liquidity and arbitrage opportunities. The study examines trading behaviors of large and small traders separated by their transaction costs and shows the lifting of price restrictions strengthens the correlation between extreme order imbalance and extreme mispricing. Also, autocorrelations of the underpricing and overpricing persist longer, in particular for big traders, and so do those of buy-side and sell-side order imbalances. However, the outcomes for the post-lifting market efficiency are mixed. This paper provides evidence that lifting price restrictions enhances informed trading and the lead–lag relationship between mispricing and order imbalance in the cash and futures markets.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056012000779
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 25 (2013)
    Issue (Month): C ()
    Pages: 408-423

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    Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:408-423
    DOI: 10.1016/j.iref.2012.08.001
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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