A Study On The Price Discovery Functions Of CSI300Index Futures

Thanks to the various functions of stock index futures, it has occupied a very important place in financial market. For example, the price discovery function, risk aversion function and hedging function. Among them, the function of price discovery is the basis of other functions. The process of price discovery is actually the process of information market reaction to the price. In each market, are filled with a lot of information. The capacity and speed of a single market identifying information determines the efficiency of the market price discovery. For two market with a high correlation, such as the stock index futures market and stock market, impact of fluctuations in the price is mostly consistent. But the two market to the information gathering and the reaction ability is not the same. First to gather the information together and react to the market price on the price discovery is a leader, Another market even as the leader of price changes in the price changes. Therefore, we concern the leader with price discovery function.Many scholars have studied on the stock index futures price discovery among the mature markets and emerging markets. As the different research object, event interval and the methods, resulting in the research results are not the same. But most of the studies show that, the stock index futures has the function of price discovery, and in a more mature and more developed market, the stock index futures price discovery function more efficiently. The theme of the study is the price discovery function of the CSI300index futures. CSI300stock index futures is based on the CSI300Index. The CSI300index is formally traded on April16,2010. The CSI300Index is the first time two stock exchanges in Shanghai and Shenzhen jointly released, to reflect the overall trend of China’s A-share market. The CSI300Index constituent stocks are selected in Shanghai and Shenzhen in large scale, good mobility300stocks, and it will be adjusted to exclude those not representative stocks every six months. Meanwhile, the market capitalization of the CSI300index sample contained nearly60%of the total market capitalization of the Shanghai and Shenzhen, and all sectors of the stock has reached a basic balance. Therefore, the CSI300Index can be a good representative of China’s A share market. It was launched with great significance. The CSI300stock index futures are full play to the function of price discovery research is of great significance in the four years.For the first, the stock index futures price discovery function studies can prove whether the stock index futures market is an efficient market. Also, we can test whether the stock index futures in our country has matured or maturing. Secondly, the study on the stock index futures price discovery function can help investors make a profit. Therefore, for the management purpose, the study on the CSI can make the stock index market more efficient. For the investors, they can make a profit through the study. Meanwhile, research on stock index futures price discovery function can also be conducive to the healthy development of China’s financial markets.The CSI300index futures is welcomed by investors since April16,2010. And trading volume has increased steadily. The index futures was so popular in the Chinese market because of its own characteristics. Firstly, before the CSI300index futures launched, Chinese stock market lacks the instrument that can sell short. Secondly, the stock index futures has leveraged. The minimum margin ratio of CSI300index futures is12%. China has also introduced a number of rules to control the risk of stock index futures. In this paper, the selected data is CSI300stock index futures and CSI300Index data with five minutes frequency between April19,2010and December31,2013. This paper selects data between9:35-11:30and13:00to15:00every trading day. Each sequence of data contains41,759data Empirical part of the paper is divided into two parts. Firstly, I will test all the data within the selected range. Then, I will divided it into7groups to test. I will use3empirical method in the article. They are Granger causality test, variance decomposition and cross correlation. Granger causality test is used to test the causality between variables. If CSI300index futures is the reason of the CSI300index, then we can prove that CSI300index futures has an impact on the CSI300index. Variance decomposition verifies how much can the CSI300index futures influence the CSI300index. Finally cross correlation is used to make a further research on the relationship between the CSI300index futures an the CSI300index.The paper is organized roughly like this. The first part is introduction including the background, research ideas and literature review. The second part is the theories of the stock index futures. The third part is the research design. The fourth part is the empirical part. The last part is the empirical results and conclusions. The fourth part of the empirical results are analyzed and conclusions are drawn in this part.