Stock index futures arbitrage in emerging markets: Polish evidence ☆ Jędrzej Białkowski a, ⁎ , Jacek Jakubowski b a Department of Finance, Auckland University of Technology, Private Bag 92006, 1020 Auckland, New Zealand b Institute of Mathematics, University of Warsaw, ul. Banacha 2, 02-097 Warszawa, Poland Received 17 September 2006; accepted 19 October 2006 Available online 27 November 2006 Abstract The efficiency of the market for stock index futures and profitability of arbitrage for contracts on the Warsaw Stock Exchange Index WIG20 is studied in this paper. The Polish market has unique attributes: in a relatively short time the risk-free interest rate has decreased significantly, short sale cannot be used to construct an arbitrage position by institutional investors, and the dividends are small and paid in an irregular manner. Examining intraday transaction data shows that ex post and ex ante violations for short arbitrage reveal almost all properties of a mature market. Nonetheless, findings for long arbitrage indicate inefficiency of the market. © 2006 Elsevier Inc. All rights reserved. JEL classification: G13; G15 Keywords: Market efficiency; Arbitrage; Cost-of-carry formula; Emerging Polish stock market 1. Introduction The relationship between the stock index futures market and the stock index market has been the subject of numerous empirical studies. A large number of them investigate the possible opportunities for index arbitrage. From the theoretical point of view, the existence of an arbitrage strategy violates assumptions of the efficiency of the market. Brokerage houses, mutual funds, large investors among others seek to make profits from the spread between prices on the spot and Available online at www.sciencedirect.com International Review of Financial Analysis 17 (2008) 363 – 381 ☆ The authors wish to express their thanks to Vesa Puttonen, Alireza Tourani-Rad and the anonymous referee for valuable comments and suggestions on the earlier version of this paper. Research supported in part by KBN Grant PBZ-KBN-016/ P03/99. ⁎ Corresponding author. E-mail addresses: jedrzej.bialkowski@aut.ac.nz (J. Białkowski), jakub@mimuw.edu.pl (J. Jakubowski). 1057-5219/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.irfa.2006.10.004