The Impact Of The Introduction Of Stock Index Futures On Stock Market Volatility

Since Kansas City Board of Trade introduced the first Value Line Index futures on 24th February,1982, many countries have introduced their own stock index futures one after the other, which making the index futures trade market more developed and mature than it was in the before. The stock index futures became one of the the most powerful tools for the investors across the whole world, and thus making it the most fast-developing derivative. China also prepared this innovative derivative for a long time and finally introduced its first stock index futures-SH300 index futures on 16th April,2010, providing the stock market with a powerful risk hedging tool.Even though the prime aim of the stock index futures is to dodge risks, it also brings a lot of disputes. The stock market crisis in 1987 made people lose trust in stock index futures and whether the introduction of stock index futures results in the sharp fluctuation of the spot market became the key research topic. Since the presence of the SH300 index futures in China, its overall performance has been safe and stable. However, the influence of it on the spot market volatility remains a hot topic. On 16th April 2015, two new stock index futures SSE 50 and CSI 500 listed in the China Financial Futures Exchange, providing the investors with a more diversified choice basket and extending the range of the financial futures products as well. But whether the introduction of the two new stock index futures will influence the volatility of the spot market and how will they affect the volatility are the questions need to be answered.The aim of this paper in the first place is to analyses the effect of the introduction of SSE 50 and CSI 500 index futures on the spot market volatility based on the GARCH model and explain whether the purpose of derivatives, which is to say if it reduces the stock market volatility, is realized or not. Another purpose is try to use the same method to analyze three of the most representative stock index futures:S&P 500 Index Futures, Hengsheng Index Futures and DAX index futures in three mature capital markets respectively, and try to compare the impact of these stock index futures on the spot market volatility with China horizontally in order to find the gap among China and other more mature capital markets and provide some guidance for the proper development of China’s financial system.