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Manipulation Prevention and Hedging Effectiveness: Optimal Settlement Window Design for CSI 300 Stock Index Futures

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  • Song Jun
  • Luo Rui

Abstract

We empirically evaluate the current 120-minute settlement window for China Securities Index 300 Stock Index Futures. We assume that an exchange chooses the optimal settlement window to maximize its profit by increasing its revenue from trading volume and by curtailing its surveillance expenditure via designing contract specifications. Given that a longer settlement window may reduce the hedging effectiveness but result in cost savings, we find that the optimal settlement window is located between zero and forty minutes under varied unit investigation costs and suggest that it may be more appropriate to set a shorter settlement window.

Suggested Citation

  • Song Jun & Luo Rui, 2013. "Manipulation Prevention and Hedging Effectiveness: Optimal Settlement Window Design for CSI 300 Stock Index Futures," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(6), pages 52-66, November.
    • Handle: RePEc:mes:emfitr:v:49:y:2013:i:6:p:52-66
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    Cited by:

    1. Atilgan, Yigit & Demirtas, K. Ozgur & Simsek, Koray D., 2016. "Derivative markets in emerging economies: A survey," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 88-102.

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