China's Investment In The Stock Price Index Function Study

With the rapid internationalization of securities markets in the world, Chinese securities market also make its unremitting efforts to be able to connect issues globally. When we research into problems of developing securities market, we will stand a international comparison angle of view. After several decades of developments, Chinese securities market already have begun to take shape. But for the part of existing index system, there is still some way from the western market. In the western mature markets, stock indices have developed into index system. The function of index has broadened form the first and earliest reflecting function to the most wildly used function of investment.In this article, from the investment function, the exertion of this function and the distance between western mature markets and Chinese will be analyzed. This article is also trying to find the major obstacle to exertion of the function and some suggestions will be put forward at the end. The author hopes this article will be helpful to the masses of investors when they make investment decisions, the regulators who want to further improve the index system, and other scholars who want to study in the same field.In particular, the first section of this paper introduced basic concept and the methods of compilation of stock index, and then laid emphasis on the introduction of development history of index's function. On the basis of the thing that forefathers study, the author defined two aspects of the investment functions of stock index. On the one hand, in the environment full of indexing investment, indices can be take as the basis of investment tools, we can take the index fund as an example. On the other hand, the other aspect of the investment function of index was created from the revolutionary combination of financial derivative and stock index, we can take the stock index futures and index options as successful examples.Secondly, in order to make a thorough study in investment function of index, MPT&CAPM, EMH and Random Walk Theory were introduced as theoretical basis. And then, combining the actual situation, index fund and index futures were taken as typical examples in practical application of index's investment function.Thirdly, this article took the empirical test of investment function of stock index with two aspects in Chinese stock market. One aspect was a test of index fund performance. Based on regression analysis and some criteria like tracing error, earning rate, standard deviation, Sharpe index, we found out that the selected index funds had good index tracking ability, but their performance were far from the average level for the whole fund product. For the completive replication index funds, the advantage of indexing investment was not fully realized. The index funds with active investment part failed in beating the market and had a high risk level. At the same time, we found the 300 SSE showed its great representation and super securities-selectivity ability. The other aspect was a test of the launch of index futures in China. The author examined the price discovery function and hedging function of index futures with Granger causality test and Cointegration test. We found that 300 SSE futures could not lead spot price. There was no cause-effect relationship and long-term equilibrium relationship between the stock index and stock index futures. The price discovery function and hedging function of index futures failed, the basic condition in index futures market have not yet met the needs. In general, our present-day index funds had a low rate of return and the the advantages of indexing investment played a weak role in Chinese stock market. The index futures market was still not complete, and index options, index warrant and other index derivatives were still blank in China. Especially, the quantities of stock index which can achieve the fundamental requirement were too small at the present time. This leads to the failure of investment function of index in China.At last, this article looked into the causes of above-mentioned problems from the outside and inside two aspects. One aspect was from the shortcomings both of the index futures market and the stock market in China. The other aspect was the defect of stock index system. Based on the above researches, the relative policy suggestions were proposed. Such as strengthen the information disclosure to improve the market efficiency. Cultivate qualified investors vigorously to optimize the structure of investors in market. Diversify the stock index derivatives to construct multi-hierarchy market system. Build complete stock index system.