Research in International Business and Finance 58 (2021) 101473

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Research in International Business and Finance

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Full length Article

The maturity effect of stock index futures: Speculation or

carry arbitrage?
Kewei Xu a, Xiong Xiong a, Xiao Li b, c, *
a
College of Management and Economics, Tianjin University, Tianjin, 300072, PR China
b
School of Finance, Nankai University, Tianjin, 300350, PR China
c
Institute of Digital Finance, Nankai University, Tianjin, 300350, PR China

A R T I C L E I N F O A B S T R A C T

Keywords: Using the implementation of trading restrictions on CSI 300 index futures market as a quasi-
Maturity effect natural experiment, this paper examines the maturity effect of stock index futures and its de­
Stock index futures terminants. The results show that the maturity effect changes from weakly positive to signifi­
Futures volatility
cantly negative after trading restrictions are implemented. We find that the change in the
Speculation
maturity effect is rooted in the speculative effect, which is measured by the time pattern of price
sensitivity to information, while there is a lack of support for the carry arbitrage effect on the
maturity effect of index futures. Our findings provide an opportunity to better understand vola­
tility dynamics in the equity futures market.

1. Introduction

The maturity effect of various futures has been a topic of concern and discussion for decades. Since Samuelson (1965) proposed a
theoretical model where volatility of futures prices increases as the delivery dates approach (the Samuelson effect), many scholars have
studied the effect and its determinants in the real world. However, different futures markets may exhibit different maturity effects, in
which the positive maturity effect is the volatility of the futures price contracts gradually increasing as the delivery date approaches,
whereas the negative maturity effect is defined as a gradual decrease as the delivery date approaches. Studies have examined the
differences in the maturity effect and its determinants by comparing the different types of futures markets, including commodity,
metal, and financial futures. However, it is difficult for these methods to exclude differences in microstructures (e.g., settlement
method, types of underlying spot, and investor features) and, thus, find mixed results in different markets.
Understanding the evolution of volatility and its determinants has a certain practical value for the implementation of hedging
strategies, especially when the evolutionary characteristics of futures volatility change in a market. Depending on the evolution
characteristics of contract volatility with delivery date, the futures-based hedgers should select contracts with different lengths of time
to maturity to minimize the price volatility of their portfolio. For instance, when the positive maturity holds, the hedger might consider
holding the contract, which is far away from the maturity date to avoid facing price volatility risk and risk exposure (Duong and Kalev,
2008). When the maturity effects of futures contracts change, the hedgers must consider switching their positions or changing stra­
tegies to maintain hedging effectiveness. Moreover, it is also useful for regulators to set margin requirements or commissions and
protect financial integrity and an efficient market environment (Chou et al., 2015; Brooks and Teterin, 2020).

* Corresponding author at: School of Finance, Nankai University, Tianjin, 300350, PR China.
E-mail address: xiaoli@nankai.edu.cn (X. Li).

https://doi.org/10.1016/j.ribaf.2021.101473
Received 28 January 2021; Received in revised form 2 June 2021; Accepted 3 June 2021
Available online 6 June 2021
0275-5319/© 2021 Elsevier B.V. All rights reserved.
K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Fig. 1. Trading volume and intraday activity of the CSI 300 index futures. The bar presents the daily total trading volume of the CSI 300 index
futures contracts, and the line is the intraday activity that is calculated as the ratio of total volume and total open interest.

Using the Chinese stock index futures trading restriction after 2015 as a quasi-natural experiment, we investigate the maturity
effect of the CSI 300 index futures and its variance under different market conditions. Furthermore, we analyze the possible mech­
anisms of trading restrictions affecting the change in the maturity effect of stock index futures and verify them by empirical methods.
The coming out of the CSI 300 index futures in 2010 makes short selling of stock possible in China and provides investors with a tool
to hedge their risk exposure in the Chinese equity market effectively. However, with the continuous expansion of the market scale, the
stock index futures having the advantages of low cost and two-way trading have become a tool for investors to expand speculative
leverage wantonly and are accused of instigating the 2015 stock market crash (Miao et al., 2017). To stem the sharp decline in stock
prices and support the confidence of the market, the China Financial Futures Exchange (CFFEX) raised margin requirements and
commissions for index futures and imposed strict restrictions on the non-hedging open position1 . The harsh trading restrictions
stabilized the market volatility but caused serious damage to the activeness of the stock index futures market.
Fig. 1 shows the evolution of daily trading volume and intraday trading activity, measured as the ratio of daily volume and open
interest of all the CSI 300 index futures contracts during our sample time. Fig. 1 shows that the activity of the index futures market
declines sharply as trading restrictions are implemented. The intraday trading volume drops from 8 times to 0.54 times larger than the
open interest and exhibits obvious periodic fluctuations caused by delivery transactions. Han and Liang (2017) and Hu et al. (2020a,b)
indicated that trading restrictions worsen the quality of the CSI 300 index futures market and lead to the mispricing of index futures.
Similarly, we further investigate the impact of trading restrictions on the time pattern of index futures contracts and its determinants.
We study the volatility time pattern of index futures by constructing a panel based on all the CSI 300 index futures contracts that
align with the number of days to maturity. We find that trading restrictions reverse the maturity effect of the CSI 300 index futures.
Specifically, when there are no strict trading restrictions, the CSI 300 index futures exhibit a weak positive maturity effect, while they
become significantly negative after the implementation of restrictions, that is, the volatility decreases as the delivery date approaches.
Trading restrictions directly lead to a drastic decline in speculative trading and market liquidity, further affecting the efficiency of
hedging and arbitrage. We propose two possible reasons that lead to changes in the maturity effect: speculative effects and arbitrage
effects. The price sensitivity to information and cost-of-carry are used to examine the speculative and carry arbitrage effects,
respectively. We find that the change in the maturity effect of the CSI 300 index futures is rooted in the speculative effect, that is,
trading restrictions make the price sensitivity to information, measured by search volume, change from an inverted U-shaped evolution
(Phan and Zurbruegg, 2020) to a one-way decline as the delivery date approaches. This indicates that speculative trading will stabilize
the price volatility of the CSI 300 index futures after the implementation of trading restrictions rather than aggravate volatility before
the restrictions. However, the covariance between changes in cost-of-carry and changes in spot price has not changed significantly with
the implementation of trading restrictions and, hence, there is insufficient evidence to support the carry arbitrage effect as the
explanation for the change in the maturity effect of futures.
Numerous studies have empirically tested the maturity effect of various categories of futures. Milonas (1986) found evidence
supporting the Samuelson effect in 10 out of 11 futures markets, including agricultural, financial, and metal markets. Kalev and Duong
(2008) tested the Samuelson hypothesis in 14 futures using the realized range; their results supported the hypothesis in agricultural
futures, but the opposite result was found for metal and financial futures. Karali et al. (2010) applied a smoothed Bayesian approach to
estimate the maturity effect, and their results were consistent with previous studies using linear or GARCH regression. Specific to
financial futures, Chen et al. (1999), Akin (2003), and Kenourgios and Katevatis (2011) tested the maturity effect in equity, interest

1
Specifically, the commission for intraday trading in the futures market are raised from 0.15bp to 23bp, and the margin requirements for non-
hedgers/hedger are also raised from 12%/10% to 40%/20% of the contract value after September 7, 2015. A hedging account (hedger) is a
designation for investors who use the CSI 300 index futures to offset risks from their holding in the stock market.

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rate, and currency futures by different methods, and their results generally rejected the existence of the Samuelson hypothesis (positive
maturity effect) in equity futures.
Alongside the findings discussed above, some studies have tried to investigate the reasons for the varying performance. Based on
the no arbitrage theory, Bessembinder et al. (1995, 1996) suggested that the spot price should “mean revert” to its fundamental value,
which is theoretically equal to the futures price as a carry arbitrage strategy. Thus, the negative covariance between changes in
cost-of-carry and spot price is the key reason for the positive maturity effect, which could also develop a framework predicting those
markets where the effect should be expected to hold. The findings in Daal et al. (2006), Duong and Kalev (2008), and Gurrola and
Herrerias (2011) all support this view empirically. Brooks (2012) further investigated the linkage between carry arbitrage activities
and the maturity effect, finding that the Samuelson hypothesis will only hold in markets that cannot be fully arbitraged. The empirical
results in the following study (Brooks and Teterin, 2020) also support this conclusion.
From the perspective of information flow and speculation, some studies used the underlying spot price directly or indirectly as a
proxy for mutual information flow to examine the impact of information on the maturity effect of futures and find mixed evidence to
support the Samuelson hypothesis in several futures markets (Anderson and Danthine, 1983; Barnhill et al., 1987; Lautier et al., 2019).
Extended to board information, Hong (2000) developed an equilibrium model of a competitive futures market in which traders have
private information. This is the first model to analyze the impact of speculative trading on the maturity effect in the futures market,
revealing that the maturity effect was associated with the degree of information asymmetry among investors. Phan and Zurbruegg
(2020) indicated that speculative trading caused by out-of-market information would affect the maturity effect of futures; they esti­
mated the trend of futures price-news sensitivity with time to maturity and found that the Samuelson effect was expected to hold in
markets where the inverted U-shape of the sensitivity pattern tilted more toward maturity.
Our study contributes to the literature in the following ways. First, based on a unique setting, we focus on the change in the
maturity effect in a futures market rather than compare the differences among several markets (e.g., Duong and Kalev, 2008; Gurrola
and Herrerias, 2011). This helps eliminate the influence of many basic differences in microstructure (e.g., settlement method, types of
underlying spot, and investor features) and directly examines the key factors affecting the maturity effect.
Second, because of the particularity of stock index futures, previous studies have found mixed results for the maturity effect in
equity futures but have seldom discussed why these differences occur. We find strong evidence supporting the speculative effect
measured by price sensitivity to information (Phan and Zurbruegg, 2020) being an effective explanation for the difference in the
maturity effect of equity futures markets. In contrast, although the carry arbitrage effect has been proven effective in commodity
futures, it cannot explain the anomaly of the maturity effect in an index futures market. Therefore, our results show that speculation
deserves special attention. Overall, this study provides additional evidence surrounding volatility dynamics in the equity futures
market. The findings also have practical implications for future research and the regulation of financial futures markets.
The remainder of this paper is organized as follows. Section 2 details the data and methodology, Section 3 investigates the maturity
effect of the CSI 300 index futures under different market conditions and tests robustness, Section4 further discusses and empirically
confirms possible mechanisms for the changes in the maturity effect, and Section 5 summarizes our findings.

2. Data and method

2.1. Data

Data for this study consist of one-minute trading data of all the CSI 300 index futures contracts traded on the CFFEX and underlying
stock index price; our sample period was from April 16, 2010, to August 31, 2018, covering 2,037 trading days. The delivery date of a
contract is the third Friday of the expiring month, and the exchange launches a new contract on the next trading day; therefore, four
individual contracts are traded on each trading day: the current month, the next month, and the next two calendar quarter contracts.
We constructed a panel of all the individual CSI 300 index futures contracts by aligning the number of days to maturity. Among the
contracts, the quarterly (March, June, September, and December) contracts were traded for an average of 160 days, while the contracts
for other months were traded for approximately 40 days. Following the 2015 stock market crash, the trading rules of index futures
became extremely strict, and the market microstructure and conditions changed (Han and Liang, 2017; Miao et al., 2017; Hu et al.,
2020a,b); thus, we divided the sample into two subsamples based on the introduction of trading restrictions. Given this setting, we
examined the difference in the maturity effect of the CSI 300 index futures under different market conditions and investigated the
causes of such a difference.
Following Duong and Kalev (2008) and Phan and Zurbruegg (2020), we examined the maturity effect using daily realized volatility
(RVi,t ), calculated as the sum of squared intraday returns at one-minute intervals:
∑
n
RVi,t = 2
ri,j (1)
j=1

where volatilityi,t is the realized volatility of the CSI 300 futures i on day t, and ri,j is the return of the j th minute on day t. On January 1,
2016, the trading hours of the CSI 300 index futures were changed to follow the underlying spot market, which is four hours per day.

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K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Table 1
Descriptive statistics for basic variables.
without trading restrictions with trading restrictions
Variables (before September 7, 2015) (September 7, 2015 to August 31, 2018)

Obs. Mean Std Dev. Obs. Mean Std Dev.

Δfit (10 − 4
) 1413720 0.004 9.800 569700 0.021 7.875
Δst ( 10− 4 ) 314160 0.011 7.231 172320 0.005 5.328
RV IF(10− 4 ) 4944 1.924 2.581 2328 1.394 1.812
SVI (103 ) 1134 2.010 2.506 718 1.539 0.870
Media 1134 69.985 70.773 718 36.405 69.919
Number of contracts 64 32
Average contract life 77.25 80.47

Note: 1. There are four individual contracts to trade on each trading day, and we exclude four contracts (IF1509, IF1510, IF1512, and IF1603) that
were being traded on the date when the restrictions were launched; 2. Δfit and Δst are the one-minute return of the i contract and the underlying spot
price, respectively. RV IF is the daily realized volatility calculated as the sum of squared 1-min returns; SVI and Media represent search volume index,
and media index, respectively.

Previously, trade used to occur for half an hour more than the underlying spot market per day2 . To avoid dropping any intraday price
information, we did not exclude the data of non-synchronized trading hours when calculating the realized volatility of index futures,
such that trading time length was n = 270 per day before January 1, 2016, and then equaled 240. Table 1 summarizes the descriptive
statistics for the basic variables.
Exploring the reasons for the difference in the maturity effect before and after the restriction also involves using some trading data
and internet information, including the price of the CSI 300 index futures and their underlying spot market and search volume index
(SVI) and media index (Media) on Baidu (China’s largest search engine). With a market share exceeding 70 % and a domestic impact on
investor information acquisition, Baidu’s various indices are widely used in research on China’s financial markets (e.g., Zhang et al.,
2013; Shen et al., 2017; Fang et al., 2020; Zhang et al., 2021). Following Wang et al. (2017), we chose “Stock Index Futures” as the
search keyword. The Baidu search index is the daily search volume for keywords in the search engine, and the Baidu media index is the
number of news items related to the keywords in major internet media reports.

2.2. Methodology

2.2.1. Maturity effect

We mainly focus on the maturity effect of the CSI 300 index futures and the impact of trading restrictions on them. To empirically
examine the maturity effect of index futures, we estimated the following ordinary least squares regression with fixed effects on the
panel data:
RV IFit = α + βTTMit + uit + εit (2)

where RV IFit is the realized volatility of contract i on day t, TTMit is the natural logarithm of the number of days to maturity, and uit
represents the fixed effects, containing individual and year fixed effects. We compared the regression coefficient β in two subsamples to
observe the impact of trading restrictions on the maturity effect of the CSI 300 index futures. In this regression model, a negative
coefficient β means that the volatility of the CSI 300 index futures will increase as the delivery date approaches, which is consistent
with the Samuelson hypothesis and vice versa.
Furthermore, we investigated the reasons for the change in the maturity effect of index futures under different market conditions
from two perspectives: carry arbitrage (Bessembinder et al., 1995, 1996; Brooks, 2012) and speculative trading driven by information
flows or speculative effect for short (Hong, 2000; Phan and Zurbruegg, 2020).

2.2.2. The carry arbitrage effect hypothesis

For carry arbitrage, effective arbitrage is a key factor affecting the maturity effect of futures. Bessembinder et al. (1995, 1996) and
Brooks (2012) proved that the Samuelson hypothesis will be supported in markets where the underlying spot price changes include
temporary components; in other words, there is a negative covariance between the changes in underlying spot prices and net carry
costs. Following previous studies, the covariance between changes in spot price and net carry costs was estimated using the following
regression model:
Δcostit = α + βΔSt + uit + εit (3)

where ΔSt is the daily change in spot prices. Δcostit is the change in the average net carry costs of contract i on day t, and the net carry

2
Before Jan 1, 2016, the trading hours of CSI 300 index futures were 09:15–11:30 and 13:00–15:15, after that, the trading hours changed to 09:
30–11:30 and 13:00–15:00, which are in accordance with its underlying spot market.

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Table 2
Maturity effect in the CSI 300 index futures.
without trading restrictions with trading restrictions
Variables (before September 7, 2015) (September 7, 2015 - August 31, 2018)

(1) (2) (3) (4)

TTMit − 0.049*** − 0.010 0.087*** 0.245***

(− 3.14) (− 0.66) (4.21) (11.34)
constant 0.001 − 0.146 − 0.000 − 0.715***
(0.00) (− 1.27) (− 0.00) (− 5.83)
Fixed effects no year, contract no year, contract
Observations 4944 4944 2328 2328
AdjustedR2 0.005 0.011 0.008 0.101

Note: The regression model is RV IFit = α + βTTMit + uit + εit , where RV IFit is the realized volatility of contract i on day t, TTMit is the natural
logarithm of the number of days to maturity and uit represents the fixed effects. The full sample period is from April 16, 2010, to August 31, 2018. We
divide the sample into two subsamples on September 7, 2015, the date when trading restrictions are implemented and regress separately to obtain the
differences in maturity effects under different market conditions. T-statistics are in parentheses. *, **, and *** represent the statistically significant at
10 %, 5 %, and 1 %, respectively.

cost of the CSI 300 index futures i is the daily average difference between index futures prices and spot prices, weighted by the time to
maturity.
∑
n
(fij − sj )
(4)
j=1
costit =
n × TTMit

where fij and sj are the j th minute natural logarithmic prices of the contract and the underlying spot price on day t, respectively. Other
variables are consistent with the previous definition. If carry arbitrage is the key reason for the changes in the maturity effect of the CSI
300 index futures, then we will observe that the coefficient for Δst is significantly different under different market conditions.

2.2.3. The speculative effect hypothesis

Speculative trading has a significant impact on the maturity effect of futures. As speculative trading is often driven by information,
it will increase as investors gain more information. In the information era, investors can obtain information through the internet and
media to promote investment decisions in the financial market. Therefore, internet information is also regarded as an effective proxy
variable that measures the degree of speculation in the financial market and is used in behavioral finance research (Barber and Odean,
2008; Da et al., 2011; Wang et al., 2017; Hu et al., 2020a,b; Li et al., 2021). Regarding the futures maturity effect, Phan and Zurbruegg
(2020) used the number of news items about different commodity futures as a proxy for the information flow acquired by investors and
examined the relationship between speculative and maturity effects by comparing the time pattern of futures price sensitivity to
information.
Based on their framework, we further introduce the data of internet search volume and divide the information flow obtained by
investors into the media information flow represented by the Baidu media index and the search information flow represented by the
Baidu search index. The former is the number of daily news items about the stock index market reported by the mainstream media,
which has strong authority, and its influence on investors’ decision-making behavior is passive and indirect, while the latter represents
the information that investors actively obtain through internet search engines, which is not authoritative and has a lot of noise, but its
impact on investor’s behavior is active and direct and more consistent with the investors’ behavior described in the speculative effect.
Following Phan and Zurbruegg (2020), we defined the CSI 300 index futures’ price sensitivity to information as the natural log­
arithm of the ratio of volatility to the daily number of the Baidu search index (SVI) or media index (Media).
RV IFit
sensitivityit = ln( ) (5)
informationt

where senstivityit is the price sensitivity to futures to information of the CSI 300 index futures i on day t, and informationt represents
either the natural logarithm of the Baidu search index (SVI) or media index3 (Media). Phan and Zurbruegg (2020) indicated that
price-news sensitivity should conform to an inverted U-shape as the delivery date approaches, and the tile of the shape (skew) of
sensitivity will have a significant impact on the performance of the maturity effect in the futures market. Therefore, we regressed the
sensitivity on time to maturity and its squared value and calculated the peak to maturity (PTM) if possible.

sensitivityit = α + β1 TTMit + β2 TTM 2it + uit + εit (6)

and PTM is calculated as follows:

3
As the media index is equal to 0 on some days, we add 1 when doing the logarithmic process.

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K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Table 3
Robustness tests on the maturity effects in the CSI 300 index futures.
Panel a: Using raw series of time to maturity: TTM rawit

Variables without trading restrictions with trading restrictions

(before September 7, 2015) (September 7, 2015 - August 31, 2018)

(1) (2) (3) (4)

TTM rawit − 0.071*** − 0.053*** 0.086*** 0.310***

(− 4.61) (− 3.04) (4.18) (13.01)
constant 0.000 − 0.300 0.000 − 0.945***
(0.00) (− 2.46) (0.00) (− 7.47)
Fixed effects no year, contract no year, contract
Observations 4944 4944 2328 2328
AdjustedR2 0.005 0.030 0.007 0.017

Panel b: Using alternative data to calculate the realized volatility, RV 5minIFit

Variables without trading restrictions with trading restrictions

(before September 7, 2015) (September 7, 2015 - August 31, 2018)

(5) (6) (7) (8)

TTMit − 0.034*** − 0.010 0.043** 0.241***

(− 2.19) (− 0.56) (2.10) (8.99)
constant 0.000 − 0.040 − 0.000 − 0.925***
(0.00) (− 0.30) (− 0.00) (− 6.50)
Fixed effects no year, contract no year, contract
Observations 4944 4944 2328 2328
AdjustedR2 0.001 0.001 0.002 0.013

Note: First, we used the raw series of time to maturity (TTM rawit ) instead of the logarithmic series as the dependent variable in the regression model.
The results are given in Panel(a). Second, we calculated the realized volatility as the sum of squared intraday 5-minute returns (RV 5minIFit ), and
Panel(b) shows the results. All variables are standardized, and t-statistics are in parentheses. *, **, and *** represent the statistically significant at 10
%, 5 %, and 1 %, respectively.

PTM = e− β1 /2β2
(7)
As TTMit is the natural logarithm of the number of days to maturity, PTM is equal to the number of days when the slope of Eq. (6) is
zero (at the peak).

3. Empirical results

3.1. Maturity effect of the CSI 300 index futures

Table 2 presents the panel regression results from Eq. (2). We divided the sample into two subsamples on September 7, 2015, and
regressed separately to obtain the impact of the restrictions on the maturity effect in the CSI 300 index futures market.
In Columns (1) and (2), we find that the coefficient for time to maturity (TTMit ) is negative but insignificant, implying that the CSI
300 index futures exhibit a very weak positive maturity effect (Samuelson hypothesis) during normal periods (without strict trading
restrictions).
However, after imposing the trading restrictions, the coefficients for TTMit changed to significantly positive (= 0.245 after con­
trolling fixed effects), which indicates that the CSI 300 index futures volatility decreases as the delivery date approaches. This contrasts
with the Samuelson hypothesis (1965) but complements the empirical findings in the Nikkei-225 index futures market of Chen et al.
(1999).
These findings suggest that the futures market will exhibit different maturity effects under different market conditions. Therefore,
we first test the robustness of the results and then examine the two possible causes for the changes.

3.2. Robustness tests

To ensure that our results are robust, we used alternative measures for time to maturity and different time interval returns to
calculate the realized volatility.
First, we took the logarithm of time to maturity when examining the maturity effect in the CSI 300 index futures volatility. This is
because we observed that the degree of changes in volatility changes will increase as the delivery date approaches, rather than a simple
linear change. However, several previous studies (see, e.g., Duong and Kalev, 2008; Motengwe and Alagidede, 2016) have used raw
time series of time to maturity and found that futures volatility exhibits a maturity effect. To avoid observation bias, we also used the
raw series of time to maturity (TTM rawit ) instead of the logarithmic series. Panel a of Table 3 shows the results of the first robustness
test, in which the coefficients for time to maturity are significantly positive during the period with trading restrictions (Columns (3)‒

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Table 4
Descriptive statistics for the CSI 300 index futures prices sensitivity to information.
Variables without trading restrictions with trading restrictions t-statistics
(before September 7, 2015) (September 7, 2015 to August 31, 2018)

Obs. mean Std Dev. Obs. mean Std Dev.

sensitivity SVIit 4240 − 16.332 0.671 2328 − 16.731 0.856 20.76***

sensitivity Mediait 4240 − 13.200 1.225 2328 − 12.294 1.270 − 28.19***
Number of contracts 56 32
Average contract life 74.09 74.44

Note: sensitivity SVIit and sensitivity Mediait are the sensitivity that futures prices have to search volume and news volume on search engines,
( )
respectively. sensitivityit is the futures price sensitivity to information, it is calculated as sensitivityit = ln⁡ RV IFit /informationt , where informationt
is equal to either the Baidu search index (SVIt ) or the Baidu media index (Mediat ) on day t, and RV IFit is the realized volatility of contract i on day t.
The last column is the results of the tests for the difference between the two subsamples. *, **, and *** represent the statistically significant at 10 %, 5
%, and 1 %, respectively.

(4)). However, we find that the coefficients are negative and have higher statistical significance (t-statistics = − 3.04 in the model with
fixed effects) before September 7, 2015, when using the raw series of time to maturity as the dependent variable of the regression.
These results support our earlier findings that the maturity effect in the CSI 300 index futures changed (reversed) after the imple­
mentation of trading restrictions.
Second, we used the sum of squared one-minute interval returns to calculate the realized volatility to capture intraday price
fluctuation information. Several empirical studies have selected returns at different frequencies to calculate realized volatility (Duong
and Kalev, 2008; Phan and Zurbruegg, 2020), and Taylor (2004) stated that a “five-minute frequency is deemed to be low enough to
avoid stale data and high enough to avoid loss of information” (p. 816). To account for this, we also chose intraday five-minute returns
to calculate the realized volatility (RV 5minIFit ) and used it as the alternative independent variable of Eq. (2) to obtain the maturity
effect in the CSI 300 index futures. Panel b of Table 3 shows the results of the second robustness test, which remain similar in quantity
and significance to our baseline results.

4. Channel analysis

Empirical results indicate that the maturity effects of the CSI 300 index futures have reversed after the implementation of the
trading restriction rules. Exploring the reasons for this change requires discussing the impact of trading restrictions on the CSI 300
index futures market.
First, the restrictions issued by the CFFEX include substantial increases in margin requirements for non-hedge trading and com­
missions for intraday trading while limiting the number of positions for non-hedge trading. These restrictions directly oppose spec­
ulative trading, making it difficult for many investors, especially individual investors, to participate in the CSI 300 index futures
market. Effectively, the information that affects speculative trading may not be impounded in the futures prices in time, that is, the
price sensitivity to information described by Phan and Zurbruegg (2020) decreases and then causes changes in the time pattern of
volatility.
Additionally, although the rules do not impose direct restrictions on investors with spot positions as strictly as they do on spec­
ulators, the withdrawal of many investors from the index futures market has led to a drastic decline in trading volume, and market
liquidity has dried up. It is difficult for hedgers and arbitrageurs to find counterparties when trading, which may lead to the failure of
the carry arbitrage strategy, and the spot price is not subject to the mean reversion process of its futures price, as described by Bes­
sembinder et al. (1995, 1996). As a result, it has led to changes in the maturity effect of the CSI 300 index futures.

4.1. Speculative effect

Previously, we discussed two possible reasons for the changes in the maturity effect of the CSI 300 index futures after trading
restrictions. This section seeks empirical evidence supporting our first supposition, in which the speculative effect is the key reason for
explaining the changes in the maturity effect of the CSI 300 index futures.
We use price sensitivity to information as the measure of the speculative effect. Phan and Zurbruegg (2020) suggested that
speculative trading is driven by information flows and that the sensitivity that futures prices have to information is related to this
trading activity. They used the number of news items as the proxy for information flow, and futures price sensitivity to news would
subsequently impact the volatility maturity effect of futures contracts. Based on previous studies, we further divided the information
flow of speculators into active and passive, which are measured by search volume (SVI) and news volume (Media) on the search engine,
respectively. The start time of the available search and media indices on Baidu was January 1, 2011, and, thus, we extracted the CSI
300 index futures sample in the same period. The descriptive statistics for the CSI 300 index futures price sensitivity to search and news
volumes are in Table 4 alongside the difference in sensitivity between different periods.
Table 4 provides preliminary support for our first purpose, in which the sharp decrease in speculative trading caused by trading
restrictions changes the sensitivity of the CSI 300 index futures price to information. Considering these, we further investigated its
impact on the maturity effect of the CSI 300 index futures. Phan and Zurbruegg (2020) documented that the price-news sensitivity of

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K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Table 5
Results for price sensitivity to information and PTM.
Panel (a): The price sensitivity to search index (sensitivity SVIit )

without trading restrictions with trading restrictions

Variables (before September 7, 2015) (September 7, 2015 - August 31, 2018)

(1) (2) (3) (4)

TTMit 0.319*** 0.280*** 0.323*** 0.213***

(4.76) (4.69) (3.63) (3.19)
TTM2it − 0.267*** − 0.167*** − 0.201** − 0.008
(− 3.97) (− 2.59) (− 2.28) (− 0.11)
constant 0.000 0.410*** − 0.000 0.232*
(0.00) (3.00) (− 0.00) (1.95)
Fixed effects no year, contract no year, contract
Observations 4240 4240 2328 2328
AdjustedR2 0.007 0.008 0.002 0.26
PTM 2.313 days 6.04 × 105 days

Panel (b): the price sensitivity to media index (sensitivity Mediait )

Variables without trading restrictions with trading restrictions

(before September 7, 2015) (September 7, 2015 - August 31, 2018)

(5) (6) (7) (8)

TTMit 0.195*** 0.153*** 0.450*** 0.472***

(2.90) (2.63) (5.04) (6.33)
TTM2it − 0.236*** − 0.149** − 0.423*** − 0.531***
(− 3.52) (− 2.36) (− 4.73) (− 6.54)
constant 0.000 0.734*** − 0.000 0.363***
(0.00) (5.50) (− 0.00) (2.73)
Fixed effects no year, contract no year, contract
Observations 4240 4240 2328 2328
AdjustedR2 0.004 0.200 0.001 0.100
PTM 1.671 days 1.560 days

Note: The coefficients are estimated by the multivariable panel regression model: sensitivityit = α + β1 TTMit + β2 TTM2it + uit + εit ,where TTMit is the
natural logarithm of the number of days to maturity, and sensitivityit is sensitivity of price to information measured by the search and media indices,
respectively. The last of each panel is peak to maturity (PTM) of sensitivity, which equals the number of days of the peak of the shape to delivery date
and is calculated as PTM = e− β1 /2β2 . T-statistics are in parentheses, and *, **, and *** represent the statistically significant at 10 %, 5 %, and 1 %,
respectively.

futures followed an inverted U-shaped trend during the life of futures contracts, and the tilt (PTM) had an impact on the maturity effect
of the contract. We estimated a panel regression model with a quadratic term of time to maturity (Eq. (6) to observe the evolution of
price sensitivity to information during the life of the CSI 300 index futures contracts under different market conditions and calculated
PTM based on the results considering fixed effects. The results for price sensitivity to the search index/media index are in Panels a and b
of Table 5. To compare intuitively, we also plotted the evolution trend in Fig. 2.
The results in Table 5 are interesting. First, the sensitivity that the CSI 300 index futures prices have to information follows an
inverted U-shape in most situations.4 These results support Phan and Zurbruegg’s (2020) findings; however, in contrast to their results
in agricultural, energy, and metal futures, we find that the PTM is relatively small in the financial futures market, which is equal to
approximately two days (approximately 2.7 % of the average contract life, except the results in Column (4)) to delivery date.5
Second, we find that the PTM calculated based on the search index, which measures the information of speculators more effectively,
changes significantly after the implementation of trading restrictions. Considering that the average life of the CSI 300 index futures
contracts is 74.44 days and the longest is 159 days, PTM equals 0.6 million days, implying that the CSI 300 index futures price
sensitivity to information changes monotonically during the whole life of futures contracts. The results suggest that the sensitivity that
the CSI 300 index futures prices have to information decreases significantly as the delivery date approaches after the implementation
of trading restrictions, while it increases during most of the contracts’ lives before, and these can be observed directly from Fig. 2(a).
These results provide strong support for our first supposition and also suggest that speculative trading helps stabilize volatility
under some market conditions rather than always playing the role of increasing volatility, as commonly believed.

4
The information is measured by search index after September 7, 2015, which the quadratic term of time to maturity is negative but insignificant
in Column (4).
5
The largest PTM found by Phan and Zurbruegg (2020) is 117 days (91% of contract life) in gold futures and the least is five days (5% of contract
life) in crude oil futures.

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Research in International Business and Finance 58 (2021) 101473

Fig. 2. The evolution of the CSI 300 index futures price sensitivity to information. It plots the predicted shapes of price sensitivity to either search index (left) or media index (right) based on the
multivariable regression results by Eq. (6). The horizontal axis is the number of days to delivery date, and the vertical axis is the predicted CSI 300 index futures price sensitivity to information. The solid
line/dotted line in each figure plots the evolution of price sensitivity to information before/after September 7, 2015.
K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Table 6
The carry arbitrage effect in CSI 300 index futures market.
without trading restrictions with trading restrictions
Variables (before September 7, 2015) (September 7, 2015 - August 31, 2018)

(1) (2) (3) (4)

ΔSt 0.031** 0.033** 0.121*** 0.127***

(1.98) (2.09) (5.86) (6.11)
constant − 0.000 − 0.067 − 0.000 − 0.366**
(− 0.00) (− 0.48) (− 0.00) (− 2.43)
Fixed effects no year, contract no year, contract
Observations 4944 4944 2328 2328
AdjustedR2 0.001 0.001 0.014 0.090

Note: The carry arbitrage hypothesis in the CSI 300 index futures market is the first possible mechanism that causes the maturity effect to change after
trading restrictions. The regression model is Δcostit = α + βΔst + uit + εit , where Δcostit and Δst are the changes in net carry costs and underlying spot
prices, respectively.
All variables are standardized, and t-statistics are in parentheses.
*, **, and *** represent the statistically significant at 10 %, 5 %, and 1 %, respectively.

4.2. Carry arbitrage effect

The carry arbitrage effect is another possible reason for the difference in the maturity effect. Bessembinder (1995, 1996) and Brooks
(2012) suggested that the Samuelson hypothesis will be supported in futures markets that can achieve a high degree of carry arbitrage.
In other words, the negative maturity effect will hold in futures markets that exhibit a negative covariance between the changes in
underlying spot prices and changes in net carry costs. Duong and Kalev (2008) found that negative covariance is a key reason for the
Samuelson effect in agricultural futures but not in financial futures.
We try to find empirical evidence supporting the carry arbitrage hypothesis. We defined the daily net carry cost of the CSI 300 index
futures with Eq. (4), which is equal to the daily average difference between index futures prices and spot prices and weighted by the
time to maturity and tested the negative covariance between the changes in spot prices and changes in net carry costs with Eq. (3). The
results are shown in Table 6.
Unexpectedly, the regression coefficients of changes in spot prices are all significantly positive, independent of whether the trading
restrictions are implemented. These results suggest that there is a positive covariance between the changes in net carry costs of the CSI
300 index futures and changes in underlying spot prices; the spot price will change in the same direction as the net carry costs changes
rather than the mean reversion as described in Bessembinder (1995). The positive covariance can explain why the CSI 300 index
futures do not exhibit the Samuelson effect as the delivery date approaches, which is consistent with previous studies (see, e.g.,
Bessembinder et al., 1996; Duong and Kalev, 2008; Gurrola and Herrerias, 2011).
However, the regression coefficients of the changes in spot prices remain positive in the two subsamples, implying that the
implementation of trading restrictions has an insignificant impact on carry arbitrage trading between the CSI 300 index futures and the
underlying spot. Overall, these results provide insufficient evidence to explain the change in the maturity effect after trading
restrictions.

5. Conclusion

This paper first examines the changes in the maturity effect of the CSI 300 index futures based on the implementation of trading
restrictions. The maturity effect of index futures changes from weakly positive to significantly negative after trading restrictions, and
the robustness test of changing the time to maturity measurement and the calculation method of volatility support the results.
Furthermore, we propose two possible mechanisms for the changes in the maturity effect of the CSI 300 index futures, which we
find are rooted in the speculative effect. Specifically, the futures price sensitivity to information measured by search volume exhibits an
inverted U-shape with time to maturity before trading restrictions, and the peak of the curve appears approximately 2.3 days to de­
livery date, while it turns into a one-way decrease as the delivery date approaches. These results imply that speculative trading will
stabilize the price volatility of the CSI 300 index futures after the implementation of trading restrictions rather than aggravate the
volatility before the restrictions. However, the covariance between the changes in net carry costs and spot prices remains significantly
positive regardless of the trading restrictions; thus, there is a lack of evidence supporting the carry arbitrage effect as the reason for the
changes in the maturity effect of index futures. Our results show that the speculative effect is a more effective indicator for analyzing
the differences in the maturity effect of stock index futures and deserves special attention in future research.

Author statement

Kewei Xu: Conceptualization; Data curation; Investigation; Methodology; Software; Writing – original draft; Writing – review &
editing; Validation; Visualization.
Xiong Xiong: Conceptualization; Formal analysis; Funding acquisition; Project administration; Resources; Supervision; Writing –
original draft.

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K. Xu et al. Research in International Business and Finance 58 (2021) 101473

Xiao Li: Conceptualization; Formal analysis; Funding acquisition; Methodology; Project administration; Software; Writing –
original draft; Writing – review & editing; Visualization.

Acknowledgements

This work is supported by the National Natural Science Foundation of China (71790594 and 71801136) and the Fundamental
Research Funds for the Central Universities (63212142).

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