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Investor Sentiment, Mispricing, and Limited Arbitrage in the Futures Market

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  • Doojin Ryu
  • Doowon Ryu
  • Heejin Yang

Abstract

We examine how investor sentiment influences KOSPI 200 futures mispricing under varying market conditions, including volatility, short‐sale restrictions, and regulatory changes. The sentiment–mispricing relationship intensifies during high volatility, as arbitrageurs face greater constraints in correcting price distortions, leading to increased mispricing. Short‐sale restrictions further amplify mispricing and the impact of pessimistic sentiment. Regulatory reforms reducing domestic trading activity also shape sentiment–mispricing dynamics, suggesting that lower participation by irrational investors enhances market efficiency. Our findings underscore the importance of market‐specific factors—arbitrage constraints and regulations—in understanding sentiment‐driven mispricing.

Suggested Citation

  • Doojin Ryu & Doowon Ryu & Heejin Yang, 2025. "Investor Sentiment, Mispricing, and Limited Arbitrage in the Futures Market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(8), pages 879-895, August.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:8:p:879-895
    DOI: 10.1002/fut.22594
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    References listed on IDEAS

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