The Empirical Research On The Impact Of Stock Index Futures On Stock Market Volatility

The stock index future is an important financial derivative instrument and canpromote price discovery and hedge. In April16,2010, China officially launched thestock index future based on the Shanghai and Shenzhen300index. It filled the blank ofthe shortage of systematic risk management and the lack of short selling in China’sstock market. However, how would it affect the volatility on China’s stock market yetneed to be explored.Firstly, the thesis provides the definitions of stock index and stock index futures,the establishing method and functions of stock index and stock index futures, thenanalyze the relationship between stock index and stock index future to reveal the basicprinciples and intuitions behind it.Secondly, the thesis summarizes and analyzes the public opinions towards thelaunch of the stock index futures based on the questionnaires done by two websites:Sina.com and163.net, and looks into the public expectation toward the launch of stockindex futures on china’s stock market. According to the survey, people have differentattitudes toward the launch of stock index futures; most institutional investors believethat it would reduce the volatility of China’s stock market. As the institutional investorsare more rational and professional, this thesis takes the institutional investors’ opinionas the testable hypothesis for further empirical research.Finally, the thesis collects the closing price data of the Shanghai and Shenzhen300index from April16,2007to April16,2013as the sample data, and establishedGARCH and EGARCH models to carry out the empirical research regarding the effectof index futures upon Shanghai and Shenzhen300index market. The results indicatethat the launch of stock index futures reduces the volatility of China’s stock market tosome extent, which confirms the ex-ante view of institutional investors, and this patternexists both under good news and bad news.