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Insider trading, short sales constraints, and futures pricing

Author: Hietala, Pekka ; Koskinen, Yrgö ; Jokivuolle, EsaINSEAD Area: FinanceIn: Proceedings of the eighth annual European futures research symposium, 1996 Language: EnglishDescription: p. 268-286.Type of document: INSEAD ChapterNote: Please ask us for this itemAbstract: We develop an equilibrium model of futures pricing where the stock and the futures are otherwise perfect substitutes except there are short sales constraints in the stock market. Our proposed model can explain both the underpricing and overpricing of futures compared to the cost-of-carry parity. We test our model using Finnish data. The empirical evidence gives some support to our model while we reject the competing model of futures pricing based on risk sharing
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We develop an equilibrium model of futures pricing where the stock and the futures are otherwise perfect substitutes except there are short sales constraints in the stock market. Our proposed model can explain both the underpricing and overpricing of futures compared to the cost-of-carry parity. We test our model using Finnish data. The empirical evidence gives some support to our model while we reject the competing model of futures pricing based on risk sharing

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