Short Sales Restrictions and the Temporal Relationship between Stock Index Cash and Derivatives Markets: INTRODUCTION

Efficiency of the index futures markets has been a subject of extensive theoretical and empirical work since the introduction of these new instruments in 1982. The first research focused on the arbitrage based cost-of-carry relationship between futures and the underlying index. Those studies generally concluded that deviations from the model have diminished as regulatory constraints have been dismantled and markets have matured. A topic of growing interest is the lead--lag relationship between the stock and futures markets. Empirical evidence from the U.S. markets suggests that the futures price usually leads the stock index movements, and thus performs an informational role.