The Volatility Spillover Effect Between HS300Stock Index Futures Market And Spot Market

The volatility spillover effect has attracted the attention of the scholars and regulators in various capital markets. To investigate this problem, numerous domestic and foreign literature had showed a wide range of empirical research which is focusing on the impact of fluctuations from one market to another, In this field, the volatility spillover effect in the stock index futures market is one of the most important study. Academia thought that the introduction of stock index futures would exert two aspects (both positive and negative aspects) of the impact on the volatility of the spot market. On the one hand, there is a substitution effect between the futures market and the spot market, that is to say he introduction of stock index futures would lower the liquidity of the spot market. On the other hand, the introduction of stock index futures could promote the trading of the stock market, enliven the stock market transactions and make price volatility of the stock market more reasonable. From a long-term view, the introduction of stock index futures would enliven and stabilize the spot market, thus make the stock market more healthy and rational. Before the formal launch of the Shanghai and Shenzhen300stock index futures, some scholars have conducted a series of empirical research by making use of the simulation transaction data. Since the simulation data has some shortcomings such as the falsity and ignoring of the policy, the environment of the market and the emotion of the trader. Therefore, the empirical findings based on the simulation contract data can not reflect the conclusions based on the data of the real disk. Besides, the investors did not have a mature understanding of the CSI300index futures due to the short time it has been launched, thus the market emerge a short-term non-normal operation. Now, the CSI300index futures had been launched nearly three years, the investors became mature and the size of the market has also made a breakthrough in the development. Hence, academia and government decision-makers need to think about the influence caused by the introduction of the index futures. Compared with the mature foreign futures market that was established long time ago, Shanghai and Shenzhen300index futures is an new commodity. With the rapid growth of China’s futures market, the futures trading is playing an increasingly important role in the overall financial market. Consequently, in this paper, we will study the volatility spillover effect. There are two categories in the literature that investigate correlation between financial markets. The first one is studying the spillover effects between the mean, that is to examine the relationship based on the first-order condition; The second one is to study volatility spillovers between markets, this study is based on the second-order condition. Although the lead-lag relationship in the first-order conditions can provide predictive information to price changes, this does not mean the information is passed from the leading market to the lagging market, and therefore the more appropriate method is to study the volatility spillovers between markets. In addition, the relationship in the first-order condition between the two sequences might be false, after a study of the high-level relations between them in-depth, the first-order relationship may disappear. In this study, in order to test the impact of futures trading on the spot market, we firstly establish an EGARCH model to analyze the volatility between the stock market and the futures market. Then we could also study the asymmetric effect on this basis. After taking into account the defects of simple EGARCH model, we add time-varying characteristics of the correlation coefficient into the model and thus the DCC-MVGARCH model was adopted for further analysis of the effect of the volatility of the futures and spot markets overflow. In this study, the data ranges from2010.04.16to2013.02.18. In these data, we eliminate the non-joint trading data and finally got676data. In order to eliminate heteroscedasticity and avoid the extreme result, we use the log function on the original price. The final empirical results show that the simple EGARCH model can test the asymmetric effect perfectly. However, when it comes to the volatility spillover effect, the result is not great. We accredit it to the shortcomings of the simple model. On this basis, we make use of the VAR-DCC-GARCH model conducted by the winrats software and find the volatility spillover effect exists between the two markets. What’s more, the correlation coefficient map shows that the two series are increasingly linked.