Short-selling restrictions, strategic stock holdings and index futures markets in Finland

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Title: Short-selling restrictions, strategic stock holdings and index futures markets in Finland
Author: Hietala, Pekka ; Jokivuolle, Esa ; Koskinen, Yrjö
Organization: Suomen Pankki
Department / Unit: Suomen Pankin tutkimusosasto
Series: Suomen Pankin keskustelualoitteita
Series number: 19/1994
Year of publication: 1994
Publication date: 4.11.1994
Pages: 36 s.
Keywords: Suomi; sääntely; arvopaperit; mallit; hinnat; kaupankäynti;
Abstract: The goal of the paper is to rationalize the observed persistent underpricing in the Finnish stock index futures market.It is shown that under a binding short-selling restriction on stocks the observed futures "underpricing" can be a result of strategic motives of the Finnish industrial and financial groups to hold large amounts of stocks, which implies a net futures demand for hedging part of the financial risk brought in by these strategic holdings."Underpricing" can also emerge under short-selling restrictions, if strategic investors are better informed than other traders.Two main empirical implications of the model - a negative relationship between the futures basis and stock index volatility and a positive relationship between the basis and private information signals received by informed investors - are supported by the Finnish data from May 1988 to December 1990.
Rights: https://helda.helsinki.fi/bof/copyright


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