Empirical Research On Price Discovery Of China's ETF Market

As a function of the security exchange, price discovery is one performance of an efficient market. ETF is a kind of new financial instrument and is supposed to have a strong price discovery function. Through the analysis of the price discovery function between ETF and spot market, we can investigate the efficiency of ETF market.This paper investigates the price discovery function between ETF and index through co-integration test, Vector Error Correction Model and other mathods. Based on the empirical analysis, this paper analyses the reasons for the price discovery function of ETF market and puts forward some suggestions on how to improve the efficiency of ETF market.Firstly,this paper reviews the documents and literature of theoretical study and empirical analysis about price discovery, based on which this paper shows a guideline and innovation of this paper. Secondly, this paper introduces the theoretical principle of price diseovery from the view of ecomonics, which underlines the analisis of price discovery function of ETF in China's market.Then this paper analizes the price discovery function of ETF in China's market. Thirdly, this paper investigates the price discovery function between five listed ETFs and corresponding index through Johansen co-integration test, Vector Error Correction Model, Information Share Model and so on. The result indicates that the price discovery function of ETF market is not very obvious and index market plays a leading role in the price discovery function.Last, based on the empirical analysis, this paper analizes the reasons why price discovery function of ETF is not obvious, makes some suggestions on how to improve the efficiency of the ETF market and put forward some research aspects to be considered.