The Research On Price Discovery In Chinese HS300 Index Futures Market

The price discovery is one of the basic functions in futures markets and can reflect the efficiency of futures markets. Therefore it is always the concern of the supervisory authorities, hedgers and investors. As one of the most active trading futures, stock index futures have been speedily promoted and developed around the world. So far, Chinese stock index futures market is a rising market. Preparing for the formal launch of stock index futures, China Financial Futures Exchange started the simulation trading of HS300 stock index future in October 2006. In view of the impact of Stock Index Futures on the stock market and the relationship of spot-futures markets will become the focus of study after the stock index futures'promotion, this article empirically analyzes the price discovery function of HS300 stock index futures with the simulation data.Firstly, this thesis expatiates on why the futures market has the price discovery function. Then this article offers an empirical investigation with Johansen co-integration test based on VAR model, Granger causality test based on VECM model, Garbade-Silber model and volatility spillover model. The results indicate that: the stock index future and spot prices have long run equilibrium relationship, but the spot market is more dominant than the futures market. There is only a one-way leading function from spot price to futures price and the Garbade-Silber model shows that the price discovery function of stock index future is not effective. By analyzing the volatility spillover effect, we find that there exists only the unilateral information transition from the spot market to the futures market, and the spot market is the primary locus of informed trading.From the empirical results, we can conclude that the price discovery function of the simulation futures contracts is not significant yet, and they can not price the stock market. This result does not mean the missing of this function, which is caused by the features of the simulation market, such as small trading volume, single trading mechanism, information attributes and non-synchronous trading etc. Thus, the existence and development of stock index futures still have a very important significance in reducing the risk of price fluctuations, strengthening investors'confidence in market, protecting the interests of investors and maintain markets'stability. And further research is needed.