Dynamic Non - Linear Relationship Between Shanghai And Shenzhen 300 Index Returns And Futures Returns

In this paper, we try to use cost of carry model, SETAR model and threshold error correction model to estimate a nonlinear dynamic relationship between the CSI300futures and cash returns in1minute,3minutes and5minutes.The results of our empirical study indicate that a SETAR model can well characterize the change of pricing deviation in CSI300. The change process of pricing deviation in CSI300is nonlinear and depends on whether there is an arbitrage opportunity. The range of mean reversion is greater in the region where there is an arbitrage opportunity, and this phenomenon will not disappear with the amplification of time scale.Also, a threshold error correction model can well characterize the nonlinear relationship between the futures and cash returns of CSI300. This relationship is important and related to arbitrage in financial market. However, only when the time scale is1minute, we can observe that futures returns make an obvious reaction to pricing deviation and cash returns make a swift adjustment according to futures returns. These phenomenon will disappear when the time scale is enlarged, which may indicate that the CSI300index arbitrage opportunities will vanish in3minutes.