The Research On Price Discovery Mechanism Of Stock Index Futures By Copula

The stock index futures are effective financial derivatives to hedge risks. The price discovery mechanism is an important aspect of the stock index futures market which reflects the efficiency of the futures market. Investors, regulators and researchers have been paying close attention to the price discovery mechanism. With the introduction of the stock-index futures contract based on CSI300index in April,2010, it instantly attracted a lot of investors to get involved. The research on the price discovery mechanism of CSI300index futures market provides reference for both investors and the designers of the CSI300index futures.The paper illustrates the characteristics and the price discovery mechanism of futures market following by enquiring into the causes and influential factors.We used the daily yield of CSI300index futures as the data in the empirical study. During the empirical study, it is favorable to choose t-Copula to establish the Copula-EGARCH-t model to test the volatility spillover effect and correlation between spot market and futures market especially tail dependence. We get the conclusions:the yield on spot market has a long-term stable relationship with the yield on the futures market; the markets have a high correlation with the changes in the yields and the futures market has volatility spillover effect towards the spot market. The correlations between the markets are more obvious when the price fluctuates dramatically in the stock market and the volatility in the futures market will more likely spill over into the spot market. In this case, the futures market displays a stronger price discovery process.The empirical results show that the CSI300index futures have a leading effect over the spot commodities. The changing trends are more obvious and the volatility time lasts longer in China which demonstrates a high efficiency in the price discovery process. The results are attributed to the traits of futures trading and the unique trading mechanism of the stock index futures market, but the spot market cannot reflect the real price. So in the final part, the paper makes some suggestions regarding the law perfection, regulatory system and the spot market development with consideration of the national conditions.