Study On Manipulation In Chinese Stock Index Futures Market And Its Influence On The Market Functions

It can be found that several famous disturbances happened in international financialmarkets were highly related to manipulation. Among which stock index future markets servedas pivotal stages for manipulators. Stock index market has run for more than3years andcleared37future contracts successfully since April16th,2010, the date it started its operation.There are many commentaries on the role of the market. Some positive opinions such as themarket running steadily and actively, and keeping in line with HS300index highly may beheard. Also some thinks that the market’s functions of price discovery and hedge can be foundgradually. But critical opinions may be more popular. Some critics think that it’s manipulationin that market that made the stock markets fall seriously. Some suspect that there are someforeign financing banks manipulating the stock index market in China. Even some worry thatfinancial crisis may probably happen in China some day in the future just like it happened inThailand in1997. It’s of high value both on theoretic and practical aspects when thedissertation studies on the manipulation in stock index market in China.This dissertation mainly studies on the possibility and reality of manipulation in Chinesestock index future market and its influence on the function of the market by theoretical andpractical analysis. How to supervise it effectively and combat with it seriously to prohibit itare also studied here.First, some new opinions on definition, identification and measurement of manipulationin stock index future market are gotten after careful analysis of the corresponding literatures.The manipulation in stock index future market is defined as behavior investors exert on themarket with bad content. What’s more, the behavior should satisfy two conditions. One is thatthe content of the behavior is driving the price to move at an anticipated direction. The otheris that manipulators believe that the price won’t move at that direction or won’t move thatmuch with their manipulative operations. It’s found that three factors including artificialprices, causation between suspected manipulation operations and artificial prices andmanipulative intent should be considered most in manipulation identification. And methods ofconfirming the three factors are provided correspondingly. It also be suggested thatmeasurement of manipulation should be based on harm it does to the market and this type of measurement will do help to combat with manipulation more effectively.Second, profiting mechanism of manipulation is analyzed. Then impact cost,co-movement among the price of main stock index future contract, HS300and its sub-indexand some big-cap stocks are also studied. What’s more, the leverage effect and investors’behavioral biases together with investor structure of the market are analyzed. All the factorsstudied above are quite profitable for manipulators in Chinese stock index future market.Thirdly, the existing of manipulation in Chinese stock index future market is testified byusing both MFDFA model and Garch model. It’s found that manipulation may exist in thewhole range. Especially in some single trading days and some trading hours manipulations arefound by using1-minute high frequent prices.Finally, this dissertation analyzes what influences manipulation may exert on stock indexfuture market’s price discovery and hedge function. We can get conclusions as follows:market manipulation will weaken stock index future market’s function of price discovery; onthe contrary, strong price discovery function of stock index future market will provideconvenience for manipulators; manipulation will increase investors’ demand for hedgebecause of the big risk manipulation made in stock market; hedge will also provideconvenience for manipulators and hedgers will face loss.