The Research On The Relationship Between The Shanghai 50ETF Options And The Underlying Based On The GARCH Model

The Shanghai 50 ETF options, China’s first exchange-traded options, was listed for transactions on February 9, 2015. Up to now, the Shanghai 50 ETF options has been running for more than one year. The arrival of the options era is a new experience for the majority of investors, and it is of great significance to China’s capital market’s operation, improvement and development. Just in the past 2015, the running of China’s capital market was not smooth, so various individuals including the regulators want to know the reason for the violent fluctuations of stock markets and want to make out whether there is direct or inevitable link between the violent fluctuations and the Shanghai 50 ETF options. Therefore, it is of great significance to explore the impact of the introduction of the Shanghai 50 ETF options on the underlying spot market, and the spillover effects between the options and the spot market.The empirical researches of this paper can be divided into two parts. The first part is about the impact of the introduction of Shanghai 50 ETF options on the underlying spot volatility; The second part is about the spillover effect between the options and the spot market.In the first part of the empirical research, by using the daily yield sequence of the underlying and using the GARCH model with the introduction of dummy variable in the variance equation, the impact of Shanghai 50 ETF options on the volatility of the underlying spot market is explored. At the same time, in order to eliminate the other factors influencing the underlying spot market, the Shanghai Composite Index is added to the mean equation, which can describe the operation of the capital market. In this case, the impact of Shanghai 50 ETF options on fluctuations of the underlying spot is explored again. The results show that the introduction of Shanghai 50 ETF options increased the volatility of the underlying.In the second part of the empirical research, by using the high-frequency data of the Shanghai 50 ETF options and the underlying and using the VAR model and VEC model, the mean spillover effect between the options and the spot market is done. the results show that the price of the underlying has a significant mean spillover effect on the price of options. And then, when exploring the volatility spillover effect, the BEKK-GARCH model is used in the research. The results above have strong universality, The results show that there is a volatility spillover effect between options and the underlying, and the volatility spillover effect of the underlying to the options is much more significant,.