A Study On Price Forming Mechanism Of Stock Index Futures

Stock index futures is like a double-edged sword. It will promote the healthy development of the securities market when it is introduced in time, but it will disorder the market even result in financial crisis when introduced in haste. So an effective trading system of stock index futures is needed to exert the positive function while bring the risk resulted from the introduction of stock index futures under control. An effective trading system can not be reached without a deep understanding of the price forming mechanism of stock index futures, the process in which the price is determined. Based on the theory of market microstructure, this article explored the the price forming mechanism of stock index futures, hoping it will provide some useful guides for the design and improvement of China's trading system of stock index futures.Price stablization and equilibrium mechanism as well as the behavior of investors are the core issues of stock index futures market. The research on the effects of price stablization mechanism on invesrors' behavior shows that, to some extend, there is a conflict betreen price limit and the margin policy. Increasing margin can reduce the futures contract demand of both long and short position investors, while a more restrict price limit will enhance the demand of stock index futures. The research on the effects of price stablization mechanism on equilibrium price shows that the equilibrium price is the weighted average of different type investor's estimate of the period-1 stock index futures price in period-0 as well as the weighted average of the hedge ratios and margin cost. The results also suggest that margin is a direct factor which determines the equilibrium price of stock index futures.In the research of market design and price discovery efficiency of stock index futures market, the Hasbrouck's model of price discovery proposed and Micheal's model (the extended model of Hasbrouck's) is compared and predigested to describe the dynamic relationship of market order, trade and prices, then Micheal's model is applied to analyse the effects of stock index market's design on the efficiency of pricediscovery.In the comparative research of different margin-setting methods for the benchmark margin of stock index futures, the article first brings forward the measurement of prudentiality and opportunity cost, then a theoretical framework is set up to compare various margin-setting methodologies, finally the history data of Hang Seng Index is used to examine the relative advantage of three margin-setting methods (Simple moving averages, Exponentially weighted moving averages and EGARCH). The results show that EGARCH produces the least opportunity cost given different prudentiality.In the empirical research of price discovery and volatility spillover in stock index futures market, the VECM and Vector GARCH model is used to examine the price discovery function and volatility spillover effect between spot and futures market of stock index. The results indicate that while the Hang Seng Index futures markets improves the efficiency of price discovery, it has also been a source of instability for the spot market.If a financial asset is traded in more than one market, common factor models may be used to measure the contribution of these markets to the price discovery process. Using two different common factor models, information share model and permanent-transitory model, the article examines the contribution of spot and futures markets of Hang Seng Index to price discovery. The results show that the futures market contains more information than spot market, although they are both governed by the common factor, which is consistent with trading cost hypothesis.In the finality, the problems requiring further studies are discussed.