An Empirical Study On The Impact Of Introducing Stock Index Futures To Spot Markets

Stock Index Futures have become the most rapidly developing subclass of the financial derivatives in the recent decades. The development of stock index futures in the emerging markets is particularly rapid. The Korean KOSPI 200 Index Futures and the Taiwan Stock Exchange Weighted Index Futures (TWSE) have been the world's greatest trading volume and increasing most rapidly futures species. In the background of China is going to launch its own stock index future market, people from all walks of the market are very concerned about the impact of stock index futures on China's securities market. In view of this, the paper reviews KOSPI200 index futures and TWSE index futures development process for research, which are closely related with the China's Mainland market and are often regarded as the representatives of emerging markets, using daily transaction data as a sample of a period of 18 years before and after the launching time of stock index futures, in order to provide some reference for launching China's Shanghai and Shenzhen 300 Index Futures.This article draws on research literatures of the mature market, and makes an attempt to analyze the impact of volatility, liquidity and components premium phenomenon of KOSPI200 and TWSE index futures. In the respect of research methods, since the stock index series exhibit the self-related and heteroskedastic characteristics, which cannot be studied by the traditional risk-return method, we introduce the GARCH models as tools including TARCH and EGARCH non-symmetric models to make empirical analysis of sub-samples of stock index futures markets in different development stages and different areas.The whole article is divided into following five parts. Chapter One is an introduction of the main topics on research background and significance, research logics and frameworks, difficulties and innovations. Chapter Two is a brief overview of stock index futures development and its definition as well as functions. Chapter Three presents a comprehensive summary of the theory and literature review regarding the relationship between the spot market and future market among various studies of domestic and overseas professionals. Chapter Four conducts an empirical research of the volatility, liquidity and the components premium aspects of South Korea and Taiwan index futures markets. Chapter Five is the part of conclusions and recommendations, with summaries of emerging markets research as the evidence. It also explores the necessity and feasibility of launching China's stock index futures. Furthermore, it points out the potential impact on introducing the Shanghai and Shenzhen 300 Index Futures and suggests relative regulatory measures the authority should take to strengthen the market supervision.