Empirical Research Of Stock Index Futures Pricing Based On Chinese Market

Stock index future as an important financial derivative, can significantly help price-discovery, hedging, portfolio management, and improve liquidity for capital markets. Currently, stock index futures are available for almost all major securities markets all over the world. Though started relatively later, stock index future is developing rapidly in China. In Sep. 2006, CFFEX is founded, and CSI-300 Index Futures mock trading system started operating from that October. Besides, formal trading system and product is under active preparation now.Former achievement of quantitative researches on stock index futures are mainly focused on such subject as pricing model, lead-lag relationship between spot and future price, influence on spot market from the introduction of futures, etc. However,customized researches focus on pricing of index futures based on Chinese enterprises and market are still limited, both in amount and depth. We choose several stock index future products based on Chinese enterprises and market, and made a research into their pricing efficiency and the causes of their pricing deviation.First, we choose HSCEI Futures from HK market, Xinhua-FTSE A50 Index Futures from Singapore market, and CSI-300 Index Futures mock trading contacts from CFFEX. We utilized classical Cost of Carrying (COC) Model and Arbitrage-free Range Model, and tested historical prices data of the index futures contracts above. We discovered that pricing efficiency of CSI-300 Index Futures mock trading contacts is significantly low, pricing deviations are largely found and there existed a large amount of arbitrage opportunities (in theory). Comparatively, the pricing efficiency of HSCEI and A50 Index Futures are much higher.Second, we made a further research into the pricing deviation of CSI-300 Index Futures mock trading contacts. Two factors were introduced: the length of time to the delivery day, the condition of stock spot market. A linear regression was constructed in order to find out what is contributing to the pricing deviation. After empirical tests, we discovered that the pricing deviations can be significantly explained by the spot price of CSI-300 Index. Therefore, a conclusion can be drew that the pricing deviations (overprice) of CSI-300 Index Futures mock trading contacts were largely influenced by the bull market of Chinese A-stock spot market and the corresponding optimism.At last, According to our test result above, we made several policy suggestions such as continuing improve the mechanism of Chinese stock spot market, introducing margin trade system, and introducing ETF on CSI-300 Index, in order to assure the stability of market after CSI-300 Index Futures are formally introduced.