The Impact Of Sub-prime Crisis&QE Policies On Causality Relationship Betweem Spot And Futures In Taiwan&Hong Kong

After a long-time preparation, CSI300index futures had made a milestone in the financial market in China in the16of April,2010. In order to know what kind of impact or effect would bring to spot and index futures of stock market in China after the negative&positive market event, this paper discusses the impact&effect of price relationship&arbitrage trading between spot and futures in Taiwan&Hong Kong market separately by global external events.The study investigates the futures markets of Taiwan and HK for study of negative&positive market factor (sub-prime crisis&QE policies) in the Taiwan&HK stock index futures based on intraday returns date (5min). In addition, it also investigates the impact&effect on arbitrage trading of Taiwan market by global external events. The study period is from January1,2004to July31,2012.This research uses unit root test, cointegration test, VECM and Granger causality to examined relationship between spot and futures for Taiwan, HK and China stock index. In addition, the methodology of Arbitrage trading in Taiwan futures market also is used.The empirical results indicated that (1) there was a long term cointegration existing between spot and futures in Taiwan, HK and China during all period.(2) The results of the Granger causality indicate the only unidirectional causal relationship between Taiwan stock index and index futures both pre-sub-prime crisis period and post-sub-prime crisis period. We found that spot markets lead futures markets and futures markets lead spot markets at other times. In addition, the results of the Granger causality indicate the directional causal relationship between stock index and index futures in HK market during all period. Last, the directional causal relationship between stock index and index futures of China since its launch in2010.(3) The results of the Granger causality indicate bidirectional causality between Taiwan stock index and index futures during the period of Sub-prime and QE event. We found that futures markets lead spot markets. Therefore the futures markets have price discovery function. The results of the Granger causality indicate bidirectional causality between HK stock index and index futures during all period. We found that futures markets lead spot markets in HK. The results indicate bidirectional causality between China index futures and stock index since its index future launch in2010. We also found the futures markets have price discovery function in China.Next, the impact and effect of basis arbitrage performance in Taiwan by global external events. We found the more volatile and expanded of spread between spot&futures during the period of Sub-prime and QE event. It indicated the better of arbitrage performance during the period of Sub-prime and QE event.The sub-prime crisis&QE policies are important factor to impact and affect the price relationship between stock index and stock index futures in Taiwan&HK. It also influenced the performance of arbitrage in Taiwan.For these empirical results, it implied the market participator could reach the objects of investment strategy by futures investment and the government also could accomplish the purpose of public policy by futures investment during the period of external events. Finally, the study offers some suggestion for the China government about putting more effort for futures market development in the years ahead.