The Study Of The Impact Of Hushen300Stock Index Futures On The Volatility Of The Stock Market

IF300stock index futures has been brought in in mainland of China since April16,2010. China’s stock market is characteristic of both emerging and changing stage.Although it’s growing larger and larger, it lacks a selling mechanism, a better marketfunctioning mechanism and a proper market structure. That’s the reason why it’s beenvolatiling intensely with extreme, sudden, and simultaneous rises and declines. After the2008financial crisis, people started realizing the need to stabilize the stock market assoon as possible. Theoretically, the stock index futures can discourage investors frombuying when prices go up and selling when prices drop, thus reduce volatility of thestock market. It’s been over two years since IF300stock index futures came out. Has itactually helped stabilize the stock market? The answer comes from empirical tests. Bycomparisons of the stock market’s volatility before and after IF300, this thesis is trying tofind out the effect of IF300stock index futures on the volatility of China’s stock market.Using the return rates as parameters, I establish the GARCH model in which the effect ofIF300on the volatility of the stock market is tested. Then I have IF300and theunderlying index tested by Cointegration test and Granger causality test. It shows that anequilibrium relationship exists between IF300and the underlying index in the long run,and that the underlying index is the Granger cause of IF300, implying that the volatilityof the stock market mainly results from itself. I also employ Impulse response functionanalysis to discuss the difference of the response between the two markets when beingshocked. The conclusion is the stock market plays a more important role in pricing stocks,which confirms the result of GARCH test. Finally, I try to bring up the reasons for thetest results and come up with some advice on policy choice.