The Effect Of The Introduction Of CSI300ETF On The Pricing Efficiency Of CSI300Index Futures

Two CSI300ETFs——Harvest CSI300ETF and Hutai-PineBridge CSI300ETF,listed respectively on the Shenzhen Stock Exchange and on the Shanghai StockExchange on May28,2012, marking that China’s capital market had ETFs to track CSI300ever since. Not a few experts thought it would allow investors better engage inindex arbitrage and then improve the pricing efficiency in CSI300futures market.Studies abroad also consistently prove that the introduction of the underlying ETF canimprove pricing efficiency of the stock index futures. However, the introduction timeand product design of the CSI300ETF differ from foreign ETFs, which makeswhether it has the same effect on the pricing efficiency a question.This paper firstly defines pricing efficiency of index futures, introduces itsmetrics, then analysizes the influence of the introduction of the CSI300ETF on thepricing efficiency. Next this paper examines whether the introduction of the CSI300ETF improved pricing efficiency of the CSI300futures by using five minutesfrequency data. The combination of the comparison of four metrics and the result ofmultiple linear regression shows that the introduction of the CSI300ETF did notimprove the pricing efficiency of the stock index futures. The findings also include:CSI300futures market became much maturer after a year since the first trading day;the longer the maturity, the deviation of the CSI300futures observation price from thetheoretical price tends to be wider; the CSI300futures volatility seems to have noeffect on mispricing of the CSI300futures. Finally, a few measures are proposed toimprove the pricing efficiency of CSI300futures market. Improving ETF design,strengthening investors’ education, perfecting trade rules and relevant laws areincluded. In addition, it is to some degree valuable for index arbtrageurs forassumptions made by this paper are very close to reality.