Stock index futures arbitrate in Finland: Theory and evidence in a new market

Stock index futures arbitrate in Finland: Theory and evidence in a new market

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Article ID: iaor1997148
Country: Netherlands
Volume: 68
Issue: 3
Start Page Number: 304
End Page Number: 317
Publication Date: Aug 1993
Journal: European Journal of Operational Research
Authors:
Keywords: Finland
Abstract:

This paper examines the pricing of stock index futures contracts on the new Finnish market. The striking feature of the Finnish market is that there is no institutional framework for short selling of stocks. This has been suggested to be the most importnt reason for the underpricing futures contracts. Persistent mispricing would, however, imply that also early and delayed unwindings have value, which increases the arbitrage profits. Several rollover profits are reported in this study. This suggests that current stock owners have not yet begun trading on the Finnish futures market on a large scale.

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