The Empirical Study Of Relationship Between Stock Index Futures Market And Spot Market Based On H Share And FTSE Xinhua A50 Index

Stock index futures are perceived as one of the most important financial derivatives, it is playing an important role in financial markets nowadays. Especially, much of the futures are trading in emerging markets recently, which made more and more scholars to concentrate on the relationship between the stock index futures market and spot market. So this paper takes the emerging futures markets as the research object, to test the relationship between the futures market and spot market.This paper investigates the introduction of the futures trading has provoked volatility in the underlying spot market form information transmission, price discovery and long-term stable relationship between two markets. Although stock index futures trading has not introduced in A share market, the H share futures which closely linked to A share market is trading; Singapore began to trade FTSE Xinhua A50 Index Futures in September 2006. Therefore this article takes H share futures and FTSE Xinhua A50 Index Futures as object, simultaneously introduces the A+H stock index and HS300 index from A share market, to make the whole research closely connected with A share market, and accumulate the foundation material for our index futures in A share market.In this paper we use GARCH model to describe the time sequence of financial volatility, simultaneously introduce dummy variable to exam the impact of futures trading on price volatility in the spot market, the results suggest following:1. The trading of H share index futures has led to reduce the spot market volatility, the results implied that H share index futures has improved the quality of information flowing to the spot market. 2. The trading of FTSE Xinhua A50 Index Futures has led to no significant function on it spot market and HS300 index.In addition, we research the price discovery and long-term stable relationship between futures market and spot market. We indicate price discovery function by impulse response function and variance decomposition, and use co integration test and the error correction model to explore the long-run equilibrium relationship between two markets. The results suggest following:3.The innovation from futures market impacting on the whole system was higher than that of the innovation from spot market, the price discovery function clearly dominate in the futures market, and the futures markets have more pricing power.4. The results support the market integration between H-share index futures , H-share spot index and A+H-share spot index, they have long-run equilibrium relationship; the results also support the market integration between FTSE Xinhua A50 Index Futures, A50 Index and HS300 index , they also have long-run equilibrium relationship.In the end of the paper, we offer the suggestions based on the existing condition of A-share Index futures trading in Singapore, as well as the A -share and H-share separation transaction. Expecting this can help for developing of stock index futures in our country.