Empirical Research On Price Discovery And Volatility Spillover Of The Csi300Index Future

There are more than three years since the CSI300index future contractofficially listed and traded in the China Financial Futures Exchange till now. Thestock index future contracts have been actively purchased and sold in our domesticfuture market. We can say that the Chinese stock index future market has beingmaturing based on the observation of its overall market liquidity and the strength ofthe holding institutions’ risk control capability. But how can we make sure the CSI300index future market is playing its significant role in the function of pricediscovery, hedging the risk and managing the financial assets as we have expected?There doesn’t exist a unified conclusion yet in this area. How does the stock indexfuture work on the spot market and what kind of role the stock index future isplaying? Whether it can adjust the phenomenon of extreme fluctuations in the spotmarket to a certain extent? Will the stock index future contracts provide the marketwith more investment and arbitrage opportunities? These problems we mentionedabove re now the primary concerns of the financial organizations and the academicterritory.Against the above background, in this research, the5minutes frequencytrading data of the CSI300stock index future contracts and CSI300stock index areused as a study object, and on the premise of the special features of the Chinesefinancial market, we construct a continuous time series of stock index future pricesby considering the trading volume as a selection criterion. In the overall context ofthe econometric frame, we implement the empirical analysis of the CSI300stockindex futures on its price discovery property and volatility spillover.We carried out the impulse response analysis in accompany with the analysisof the variance decomposition, aimed to study the microstructure of the CSI300stock index future market, and use the VECM model to analyze the long-runequilibrium connection between the price of the CSI300stock index future and theprice of the spot and the short-run dynamic movement. We study the volatilityspillover effects between the CSI300index future market and the CSI300indexspot markets based on the binary BEKK-GARCH (1,1) model. In conclusion, someappropriate recommendations are given in accordance with the findings of empiricalanalysis.The consequence signify that, in a way, there is a price equilibrium relationbetween future market and the spot market in the long range, and the future marketleads the spot for about15minutes; future market has the ability to absorb anddigest the impact of the spot market, and to certain extent, the introduction of the future product did have eased the extreme fluctuations in the spot market, and it hasplayed an indispensible part in the stabilization of the domestic financial markets;we also find that the spot market is sensitive to the impact generated from the futuremarket, and the information from the future market can be fleetly reflected in thespot market. The research of volatility spillover through empirical analysis foundthat there exists a two-side spillover effect between the two markets, but spilloverfrom the cash market is much weaker than that from the future market. Thisresearch also provides the institutional investors a chance to make profit by usingsome proper arbitrage strategies. For the interrelated government divisions, thisstudy provides them with a meaningful reference in design more effective andefficient policies which can promote the index future market and enhance theefficiency of the market risk control.