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Issue 5(1), October 2010 -- Paper Abstracts

Girard  (p. 9-22)

Cooper (p. 23-32)

Kunz-Osborne (p. 33-41)

Coulmas-Law (p.42-46)

Stasio (p. 47-56)

Albert-Valette-Florence (p.57-63)

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JOURNAL OF ACCOUNTING AND FINANCE

When Does a New Market Become Efficient?

Evidence from an Emerging Index Futures Market

Author(s): Wen-Wen Chien, Roger W. Mayer, Zigan Wang, Youwei Zhu

Citation: Wen-Wen Chien, Roger W. Mayer, Zigan Wang, Youwei Zhu, (2017) "When Does a New Market Become Efficient? Evidence from an Emerging Index Futures Market",  Journal of Accounting and Finance, Vol. 17, Iss. 7, pp. 86-103

Article Type: Research paper

Publisher: North American Business Press

Abstract:

This paper tests how efficiency developed in a new exchange. The analysis shows how market efficiency evolved in the China Shanghai Shenzhen CSI 300 futures index market over time. The profitability of two well-known pairs trading arbitrage strategies were used to measure the degree of market efficiency. In the first year after the launch of the index future, the arbitrage strategies were profitable and short-term returns were predictable. The efficiency improved substantially in the second year as seen by progressively unprofitable strategies and unpredictable returns. Trading volume did not exhibit an upward trend, suggesting that the inefficiency during the nascent period cannot be explained by the lack of liquidity. It is unclear why it took as long as one year in a market with low transaction costs and a relatively sophisticated investor pool to reach a state of efficiency.