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

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 important 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 suggest that current stock owners have not yet begun trading on the Finnish futures market on a large scale.