The Empirical Research On The Impact Of Stock Index Futures On The Volatility Of Stock Index

The non-tradable share reform has been basically completed in China till May 2007, and the stock market will soon achieve full circulation. But the volatility of the stock cash market has intensified and market risks have increased in the process of the non-tradable share reform. Because the stock market lacks the necessary hedging tools, more and more people hope to introduce stock index futures in China's capital market. In fact, there are so many kinds of financial hedging instruments we can choose. Why should the Chinese government choose stock index futures as the preferred option? Whether the impact of the introduction of stock index futures on the volatility of stock cash market is active or negative? All questions need answers. So far, the majority of domestic and foreign scholars, whose studies on the volatility of stock cash market, concentrate on mature capital markets. Papers on the impact of stock index futures' introduction on the volatility of stock cash market in the emerging markets are in the minority. So the conclusions based on mature markets may be unable to provide proper theoretical support for China's capital market. In view of this, the paper chooses India, which is one of Asian emerging markets and has a similar situation like China, as the target of Empirical Analysis. The experiences of launching stock index futures in India will provide theoretical supports for China.The article starts with the definition and economic functions of stock index future. Then it introduces the history and the present situation of stock index future. With Generalized Autoregressive Conditional Heteroskedasticity model (GARCH model) added by a dummy variable, the article carries out the empirical study on S&P CNX Nifty50 index and related index futures, and concludes how stock index futures influences the volatility of stock index. Then with standard TARCH model, the article analyses two data sample intervals ranged by the spot whether stock index futures was launched or not and certificates that the launch of stock index futures can reduce system risks of stock cash market in India and quicken the speed of information transmission in cash market. And stock index futures can improve the market efficiency. But the asymmetry of the stock market has intensified, especially in the response to the bad news, because the majority of investors are uninformed. Finally, based on the empirical results and actual situations in China, it makes some suggestions on how to develop stock index futures in China.