Research On The Effect Of Chinese Stock Index Future On Volatility Of Stock Market

Stock index futures produced because of the needs to manage risk. It has been developed fast since its born in America in the late of 20th century, many emerging market countries develop their stock index future markets actively, therefore, it becomes one of the most successful futures in 20th century. As a financial innovation, the development of stock index future is the inherent requirements of healthy development of the stock market and investors' risk management. Its features of the unique short mechanism, low transaction costs, high liquidity are favored by most investors, and has a greatly active role in promoting the healthy run and development of stock market and improving the depth and breadth of the whole market. In all the topics about stock index future, where the development of stock index future has strong impact in the spot market and lead to great volatility has risen extensive interests and worries. Chinese stock index future has developed for a short time, therefore the research on the role of stock index future in spot market is very meaningful and important, also under which circumstances the development of stock index future will increase the volatility is very important and necessary, these researchs will provide suggestions and views for the forward development of Chinese stock index future.In this paper, we start with the introduction of stock index future and its history. Futher, in order to a better understanding of the infuence of stock index future on the stock market, we still elaborate the fuctions of the stock index future markets that is widely recognized. However, in the real society, whether the stock index future market will well palyed is doutful.Then in the second part, we have the theorical and empirical analysis. In the theorical part, the market is divided into the efficient market and non-efficient market, through the analysis we get that in efficient market the development of stock index future market will reduce the irrational fluctuations and is good for the long-term healthy development of stock market.,thereas in the non-efficient market, the investors who have the advantage of information and capital may take advantage of stock index market,thus make the future price invalid and the fuctions of price discovery and hedging become weaken, this will increase great risk to the normal investors in future market and stock market. In the empiaical analysis part, we choose America, United Kindom and Japan as the representatives of developed countries, their markests is greatly developed. For a comprehensive study, we still have the representatives of emerging market countries or ereas, that is Hong Kong, Taiwan and South Korea, for developing countries, we choose India, who has the same background as China. As we use the GARCH and EGARCH models, we find that the launching of stock index future does not necessarily increase the volatility of the stock market, to some countries, it may even reduce the volatility. To further research, we compare the stock index trend before and after the introduction of future, we still find that it's the macroeconomic environment that decides the stock index trend. Through the GARCH model on the change of information efficiency and volatility in spot markets, we still get the information efficiency is improved after the introduction of stock index future, this will be useful in stabilizing spot market and improving market efficiency. Still there exist a problem, the stock index future may cause the increased volatility asymmetry, we need to develop appropriate policies to decrease the negative impacts. In order to study the Chinese stock market, we still have empirical analysis on the Shanghai and Shenzhen 300 index futures and its simulation trading on spot market volatility, we find that after the introduction of simulation trading, the information efficiency is not well improved, and the market is easy to overreact to the information, but the overractiong is reduced after the run of stock index future.At last, we have some suggestions on the development of Chinese stock index future, these are based on the conclusions of theorical and empirical analysis and Chinese market situation. The inappropriate development of stock index future will bring risk, but we can't give it up, its appropriate development will greatly promote the long-term development of stock market, even the whole financial market. Chinese future market is in its early grade, and it is not fully prepared. In order to develop the Chinese future and stock market, we need to refine and improve the information disclosure system to reduce the information asymmetry between market participants, improve relevant laws and regulations for the legal basis of actual opration, strengthen the regulation and function of Futures Industry Association and promote self-management, guide the institutional investors, cultivate investors for long-term investment and value investment, and guide the market's overall investment philosophy.