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1、ManipulationPreventionandHedgingEffectiveness:OptimalSettlementWindowDesignforCSI300StockIndexFuturesJunSongandRuiLuoABSTRACT:Thispaperempiricallyevaluatesthecurrent120-minutesettlementwindowforChinaSecuritiesIndex300(CSI300)StockIndexFutures.Weassumethatanexchangec
2、hoosestheoptimalsettlementwindowtomaximizeitsprofitbyincreasingitsrevenuefromtradingvolumeandbycurtailingitssurveillanceexpenditureviadesigningcontractspecifications.Giventhatalongersettlementwindowmayreducethehedgingeffectivenessbutresultincostsaving,wefindthattheo
3、ptimalsettlementwindowislocatedbetween0and40minutesundervariedunitinvestigationcostsandsuggestthatitmaybemoreappropriatetosetashortersettlementwindow.KEYWORDS:hedgingeffectiveness,manipulationrisk,settlementspecifications1IntroductionThelaunchofChina’sfirststockinde
4、xfutures,theChinaSecuritiesIndex300(CSI300)futures,isevidenceofthedramaticprogressintheongoingreformoftheChinesefinancialsystemandthushas1drawnmuchattentionfrombothacademicresearchersandindustrypractitioners.AsStollandWhaley(1997)argue,theselectionofasettlementproce
5、durebyafuturesexchangeisoneofthedefiningfactorsinthesuccessofagivenfuturescontract.Inparticular,thesettlementwindow,definedasthelengthoftheaverageperiodforcontractsettlement,potentiallyhasasignificantimpactonfuturesmarketequityandefficiency.Forinstance,anot-long-eno
6、ughwindowcouldincreasethelikelihoodofpricemanipulation,thusresultingintheperceptionthatmarketsarenotoperatingfairly.Alternatively,atoo-longsettlementwindowcouldinvoketheconvenienceproblembetweenthesettlementpriceandtheunderlyingcashindex,therebyharmingthehedgingperf
7、ormanceofthecontract.[Table1isabouthere]AsshowninTable1,therearetwotypesofsettlementproceduresfortheworld’smajorindexfuturescontracts.Thefirsttypeisasingleprice,meaningthatthefuturescontractsarebasedonasettlementindexlevelofasinglepriceatsomepointintime(eithermarket
8、openorclose).TheUS,Japanese,SingaporeanandBrazilianindexfuturescontractsareexamplesofthistypeofcontract.Thesecondtypeisanaverageprice,whic