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Using a difference‐in‐difference approach, we find that restrictions placed on the CSI 300 and CSI 500 index futures trading during the recent Chinese stock market crisis deteriorated spot market quality, particularly the September trade restrictions. Our results can be explained by the sudden risk exposure faced by alpha‐strategy traders who stop trading spots after the index futures trading restrictions are introduced, thus worsening the spot market quality.
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Han et al. (2016) studied this question.
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