Empirical Research Of Price Discovery And Volatility Impact Of Stock Index Futures In China

Stock index futures(SIF) is an important financial derivatives. Its produce and development is the only road to improve our financial market system. Because there exists system defects in stock market and market conditions are away from mature, the launch of SIF is deferred in our courtry. Along with accomplishment of non-tradable shares reform and smooth solution of a series of historical problems, the opportunity for the listing of SIF is gradully ripe. On April 16,2010, Hushen 300 index futures officially listed, Chinese capital market turned over a new leaf. The movements of this new derivative product and stock market became the attention of investors. Within less than three months, Hushen 300 index sharply dropped more than 800 points, which caused much debate of investors and Scholars. It becme a controversial subject whether could the drop of stock market be attributed to SIF and whether the basic function of SIF exerted well.Against the background of Hushen 300 index futures having been traded for a year after listed, this paper studies price discovery function of SIF through the leading relationgship between futures spot market from the perspective of information transmission, the change in volatility of spot market before and after the listing of SIF and volatility spillover effect between the two markets. Research contents and results can not only help the masses of investors better understand the function of SIF, but also make regulators better control and supervise futures market operations.This paper is divided into five chapters as follows:Chapter 1 is introduction, including background topics, research purpose and significance, research status, framework and methodolody.Chapter 2 is theoretical introduction. It elaborats price discovery in spot-futures market and volatility impact mechanism, including the meaning of price discovery, it's implementation mechanism, superiority, volatility spillover effect, positive feedback trading and so on. Chapter 3 is model introduction, including cointegration test, VEC model, Granger causality test, impulse response and variance decomposition method, one-dimensional GARCH model and volatility spillover effect model.Chapter 4 is empirical analysis. It first tests leading relationship between futures spot market, compares their role in price discovery, then analyses the change in volatility of spot market before and after the listing of SIF with the introduction of dummy variables, compares the changes in information impact, finally analyses volatility spillover effect. The main empirical results are explained with reality.Chapter 5 is conclusion and outlook. It sums up the main conclusions, proposes appropriate policy recommendations according to the empirical results, elaborats the main contribution and shortcomings of the article, and looks into the future research.Results show that there is a long-term equilibrium relationship between prices of futures and spot, which can guide each other in the long-term and short-term. Price discovery function is reflected to some degree. However, the leading relationship is weak and price discovery function is weak. Spot market plays a greater role in price discovery. The volatility of the spot market is reducing. The impact of new information on the spot market greatly reduces, but the impact of old information increases, while persistence of overall fluctuation interference increases. Volatility spillover effect is bi-directional, which is stronger and faster in futures market.The main academic contribution of the article is reflected in the following aspects. For the first time, it studies price discovery function of Hushen 300 index futures and its volatility impact, analyses the size of the price discovery function with the adjustment factor of VEC model, proposes that the direction of spillover effect can prove the direction of the relationship, but the strength of spillover effect doesn't necessarily correspond to the size of the market role in price discovery. While studying the change in volatility of spot market before and after the listing of SIF, it eliminates the impact of financial crisis, compares the macroeconomic situation based on the data interval, which makes the conclusions more persuasive. The shortcomings are that data is not enough because of the short trading time of SIF, which may affect the modle results. Although it compares the macroeconomic situation and policies before and after the listing of SIF, the external factors still can't be fully controled.