Concerns In Stock Index Futures

Stock index futures is a futures contract on the value of a particular stock marketindex. Although it is relatively new, stock index futures has achieved a fast growthonce it was launched, and has a wide range of applications as well as a powerfulinfluence. At present, stock index futures has surpassed other derivative products byfar in transaction volume and variety, becoming the most active financial futures inthe international futures market.In recent years, in order to improve and complete security market structure, andto avoid systematic risk in market, Chinese practice circle and academic circle havelaunched a series of explorations and researches into whether bring out stock indexfutures, the significance and feasibility of stock index futures, the influence that thetrading of stock index futures would have on spot market, etc. After two decades’preparation, the CSI300stock index futures contracts finally traded on April16,2010.This essay, based on the conclusion of past researches, sets CSI300stock indexfutures as the object of study, combines the theoretical analysis with empirical studies,and puts the emphasis on empirical studies. The systematic analysis on stock indexfutures is from four perspectives: the fluctuating influence on spot market from stockindex futures, the lead-lag relationship between stock index future and spot index, theprice discovery mechanism of stock index futures, and the expiration effect of stockindex futures, hoping to provide assistance for regulators and investors.The first part of this essay contains the introduction of the background, and history ofstock index futures, and a brief description of its features and functions. The secondpart mainly provides a relevant literature review from four perspectives: the impact ofstock index futures on the fluctuation of spot market; the lead-lag relationshipbetween stock index futures and spot market index; the price discovery mechanism ofstock index futures; the expiration effect of stock index futures. The third part isdivided into four chapters and provides the analysis of the empirical test results of thefour perspectives above. The fourth part is according to the earlier findings, in orderto improve the capital market and give full play to the role of stock index futures, this essay proposes some corresponding policy suggestions in section four, hoping toprovide assistance for regulators and investors.The empirical analysis indicates that:1. The introduction of stock index futures had information impact on singlestock return. Around the introduction of stock index futures, component stock gainednegative CAR; before and after the introduction of stock index futures, the volatilityof component stocks prices rose; in the short term, stock index futures increased thesystematic risk of component stock index, and reduced the systematic risk ofnon-component stock index. In the long-run, stock index futures has significantlyincreased the systemic risk of both indexes, and didn’t produce the stabilizing effect itshould have on the spot market.2. There is long-term and stable co-integration relationship between stock indexfutures and the CSI300Index; since its introduction in last year, the stock indexfuture has had a good leading effect on the CSI300Index. Most of the leadingindicators lead approximate a minute, and gradually become stabilized. In the firstmonth after stock index futures was launched, we found that most CSI300index lagbehind stock index futures for more than two periods, indicating that index was moreinstable when stock index futures started, and that there are quite a few arbitragechances. But as time went on, the stock index futures’ leading character graduallystabilized; the leading effect get stronger in the year after the introduction of stockindex futures; the correlation coefficient rose from about0.3at the beginning to over0.5in a year, suggesting that over time the leading effect became stronger one yearafter the introduction of stock index futures.3. There is a long-term stable equilibrium relationship between stock indexfutures and spot index. Spot index market is still the major contributor of pricediscovery whilst the price discovery function of stock index futures is good, butcannot contribute that much. Probably because China still has an emerging capitalmarket, which is underdeveloped, lack of a thorough regulatory system, and haslimited appeal to investors and traders.4. China’s capital market has expiration effect of stock index futures.