Market efficiency and regime-switching calendar anomalies in China’s index futures

Despite the many studies on calendar anomalies in stock returns, little is known about seasonality in China’s index futures markets. This article studies market efficiency and regime-switching calendar anomalies in China’s CSI300, SSE50, and CSI500 futures markets, focusing on the effects of day-of-the-week, week-of-the-month, month-of-the-year, and Chinese Lunar New Year (CLNY). A Markov-switching autoregressive model with dummies is employed to capture the nonlinear dynamics of futures return, absolute return, relative volume, and basis in a low-volatility regime and a high-volatility regime. We find significant and persistent evidence of these calendar effects in the three futures markets. Moreover, non-economic factors such as the Chinese lunar calendar and market sentiment can affect institutional decision-making. Practically, we develop a simple futures trading strategy based on the CLNY effect, which generates significant economic gains and outperforms a benchmark strategy. We further demonstrate that the CLNY effect is negatively associated with market sentiment in the CSI300 and SSE50 futures markets, whereas it represents risk premiums in the CSI500 futures market. Our results generally support the Adaptive Market Hypothesis over the weak-form Efficient Market Hypothesis for China’s index futures markets.