The Impact Of Stock Index Futures 'Volatility On China' S Stock Market

After the oil crisis in1970s, most of the western countries suffered a sharp decline in stock market. Stock index futures emerged as the financial derivative which can help to hedge the risks. Since Kansas City Board of Trade (KCBT) introduced the first stock index futures contract, Value Line Composite Index in1982, stock index futures experienced a rapid growth, and become one of the most popular financial derivatives. Scholars at home and aboard did a large number of studies on it. The topic that whether the introduction of stock price index futures will increase the volatility of stock market, or decrease the volatility achieves the most attention, and there have been three kinds of opinion.It has been two years long since the first time China introduced CSI300index futures on April16th,2010. Thus, making a research about this topic shows both theoretical and practical significance. It can help to enrich the academic research and also provide reference for the development of futures in China. Based on the past research, the paper tries to test whether the introduction of CSI300index futures will decrease stock market volatility in China.The empirical study consists of two parts. The first is qualitative analysis of the volatility relationship between CSI300index and CSI300futures. It is conducted by analyzing the correlation coefficient and chart of daily closing price, also the standard deviation and volatility of daily return. Second is quantitative analysis of the volatility variation in stock market. It is conducted through GARCH model and panel data regression.Applying GARCH time series model, we come up with the optimal model of ARMA(3,3)-GARCH(1,1) to fit the daily return of CSI300index. The parameter estimation shows that, the introduction of CSI300index futures reduces the stock market volatility, but in a minor way. Applying panel data regression, we find that, it can significantly reduce volatility and improve effectiveness of stock market. Thus, in conclusion, the paper shows that, the introduction of CSI300index futures can reduce stock market volatility in China.