Arbitrage trading boosts volatility in HS 300 index futures market.
The study analyzed how trading in HS 300 index futures affected its spot market. They found that selling futures contracts caused futures prices to drop, but spot prices were not influenced by spot contract buying. The basis between futures and spot markets did not converge due to negative feedback, but because futures prices reacted faster to information. Overall, arbitrage between the two markets boosted rather than buffered spot market volatility.