An Analysis Of Volatility Spillover Between HS300 Stock Index And Its Futures

The HS300 index futures has been drawing extensive focus from the fi-nancial industry and the academic circles since its advent on April 4,2010. On one hand, some people think it offers a way to hedge the risk and alleviate the volatility of the spot stock market. On the other hand, others argue that it will make the spot stock market more volatile due to the arrival of a myriad of speculators. Furthermore, what is the real relationship between the HS300 index futures and the spot stock index, to what extent they influence each oth-er and which one dominates? In order to find answers to these questions, we need to carry on research on the volatility spillover between the two markets.This article adopts the Spillover Index proposed by Diebold and Yli-maz(2009,2012) to analysis the volatility spillover between the HS300 index futures and the spot stock index. Based on the Vector Autoregression and the Generalized Forecast error Variance Decomposition, the Spillover index is not only able to measure the level of volatility spillover in the system composed of the two markets, but also to indicate the direction and quantify the magni-tude of the spillover between the two markets. Besides, this method dose not make pre assumptions about the existence of the periods of volatility spillover. With the help of calculating the spillover index through rolling samples, we can extend our snap perspective and get a whole picture of the variety of the volatility spillover level.Through processing and analysis of the 5 minutes high frequency data covering the period from 2010.04.16 to 2014.10.31, this article get conclusions as follows:In the first place, the volatility spillover level within the whole system is strong on average. In the second place,for the whole system, when the market is in turmoil and downward state, the spillover level is relatively high, while the market is rising, the overall spillover level is low. What’s more, the dominant position only belong to the spot stock market during the beginning period of the HS300 index futures’ trading occasionally. And with the markets getting more mature and perfect gradually, the future market has dominant volatility impacts on the spot market.At last, this article compares the different behaviors of positive and negative information in volatility spillover. It is found that, the spillover of volatility emanating from the negative information in both markets is quite manifest and the negative information in the spot stock market is more prone to overflow.