Research On Effect Of Price Limits On The Volatility Of CSI300 Basis

Stock index futures, as a very important financial derivatives to the global capital market, has become a major force in most countries in the futures market. April 8, 2010, CSI300 futures were listed and trade officially on April 16. Over the past six years, the stock index futures market matures with the improvement o f the stock index futures market access rules and trading mechanisms, and plays an important role on improvement of the capital market. Basis is an important indicator of the interaction between the CSI300 index and stock index futures. Basis risk due to the fluctuations of basis has important significance for the market regulators and investors. In the existing capital markets, basis volatility can be affected by illiquidity, price latency and other reasons. Price latency refers to the hysteresis that the adjustment of the stock price lagged behind the market impact of the new information. Studies have shown that the stock market illiquidity and the price limits will caused the price latency. Price limits as a important feature in our country different from other mature capital markets has important significance in research. Studies have shown that the price limits will caused the price latency and then effect basis volatility,and further effect those investors who use the basis for hedging.and it is also easy for market regulators to make errors in judgment about the relationship between the futures market and the spot market. Therefore, the study of the price limit on the basis volatility will help guide the hedgers to make the right investment decisions, and also helps the regulators make right judgement of the market.To investigate the effect of price limits on the CSI 300 Index Futures basis volatility and the mechanism,we first use the cubic spline interpolation method of time series to revise the constituent stocks five minutes CSI300,and then obtain the corrected CSI300,which has excluded the impact of price limits on the index.The paper uses the "realized" volatility estimate volatility of CSI300 before and after correction,and then find the corrected index volatility increased significantly, by comparing the volatility of CSI300 before and after correction.It means that it is one of the reason that the price limit influences the basis volatility by inhibiting the volatility of the index. The conclusion shows that relationship betwen the stock index futures and the CSI300 before and after correction has no significant change.To investigate the effect of price limits on the CSI 300 Index Futures basis volatility,we established a price latency index as a measure of the intensity of price limits and estimated the basis based on discrete dividend.Then use GARCH(1,1) model rolling sample during sample estimates Basis volatility and volatility clustering. Based on the multivariate linear regression and vector autoregression model we came to a conclusion that it has a negative correlation between the lagged limit volatility index and basis.The price stability down index and the basis volatility have a negative correlation,and the price stability index shows short-term effects on basis volatility, but the intensity is relatively weak. As the days go on, the effect gradually decreased and finally tends to 0.the basis volatility have relatively bigger short term effect on itself. The price stability index and basis v olatility clustering have a negative correlation,it means the price limit reduces the volatility clustering to a certain extent.