Empirical Analysis On The Impact Of Stock Index Futures To The Efficiency Of Chinese Stock Market

The stock index futures of Hushen 300 listed for trading formally in China Financial Futures Exchange (CFFE) On April 16,2010, which became the first stock index future in China mainland. Because stock index futures have the function of price discovery and risk transfer, investors can optimize their asset portfolio effectively using stock index futures.So stock index futures will inevitably have a huge impact on China's stock markets and promote the stock market to continuous improvement. Based on this idea, this paper compared the market efficiency of the spot market of stock before and after the launch of Chinese stock index futures, to see whether the stock-index futures have an impact on the market efficiency.Fama divided the market efficiency into three types:weak-form efficiency, semi strong-form efficiency and strong-form efficiency. In the weak-form efficient market, stock prices fully reflect all historical information, such as historical prices, historical volume, and volatility etc. Therefore, any investment strategy based on historical information is invalid, and the stock price will show a trend like random fluctuations. The semi-strong form efficient market means all of the public information, including historical information and financial reporting, corporate merger announcement, the interest rate adjustment, macroeconomic conditions and notices, have been fully reflected in the stock price. So for the investors in the semi-strong form efficient market, any public information t is of no monetary value. In the strong-form efficient market, all the relevant information, whether publicly or undisclosed inside information have been included in the stock price, so even the user of inside information can not get excess returns.This paper study the efficiency of Chinese A-share stock market empirically in two stages, before and after the emergence of stock index futures, to see whether the type of efficiency has changed. And then test the impact of the stock index futures to the efficiency changes by inspecting whether there is a co-integration relationship between the future price and spot price.Weak-form efficiency can be recognized by testing the independence and randomness of stock price changes. This paper adopts serial correlation test and runs test, to examine whether the stock price movements accord with random walk. And for semi strong-form efficiency test this paper use the event study, observing the response of the stock market to an emergent event, examining whether it respond quickly to the new information and also inspecting whether the market is still under the influence of the event for a period after that.After empirical testing, Chinese A-share market both before and after the introduction of stock index futures showed only a weak-form efficiency, but did not meet the semi-strong form efficiency, the introduction of stock index futures on Chinese stock market did not have a significant impact on the effectiveness, Does that means the stock index futures doesn't have a great influence upon the spot market price? In this regard, this paper examines the co-integration relationship between futures prices and spot prices using the error-correction model, and the conclusion is that the co-integration relationship does exist, which means that the stock index futures play a effective role in regulating spot price by promoting it back to the equilibrium and reducing the volatility of the spot market.These views seem contradictory firstly, so this paper proposes the following explanation. First, the stock index futures market come into being only one year ago, investors are not yet familiar and can't master these investment tools in both techniques and opportunities. Second, the government set a higher entry threshold standard for stock index futures market, which limits the number of individual and smaller institutional investors to hedge, arbitrage and speculate, thus it weaken the regulation function of the stock index futures on the spot prices. Third, effectiveness of the stock market is the result of various factors, hoping to promote the efficiency considerably only through the introduction of stock index futures is unrealistic.Accordingly, the paper put forward the following recommends for improving the effectiveness of Chinese stock market. First, the state should encourage investors to use stock index futures for portfolio management and supply training for the majority of investors in investment skills and opportunities. Second, the state should gradually reduce the threshold of stock index futures market, attracting more investors. Third, the state should gradually make the change from the policy-guided market to self-guided market.