Price Discovery And Volatility Spillover

With the SSE 50ETF options and the SSE 50 stock index futures launched in 2015,the SSE 50 Index has become the first stock index with a more complete trading market,which consists of stock market,future market and option market.In this paper,the price discovery function and the volatility spillover effect among these three major markets are discussed by using 5-minute high frequency transaction data.With respect to the price discovery,the vector error correction model is established to qualitatively describe the long-term equilibrium relationship and short-term dynamic adjustment process among these three markets,while the modified information share model is established to quantitatively analyze the price discovery contributions of the future and option market.When it comes to volatility spillover,we separately use the ECM-BEKK-GARCH model and the nonparametric method based on the BN-S model.The main conclusions of this paper are as follows:(1)There exists a long-term equilibrium relationship among spot,future and option market.Ovearall,these three markets all play a leading role between each other in price discoverying.(2)The main factors influencing futures' ability of price discovery include turnover rate,the information shock each week and the market condition.While those influencing options' ability of price discovery include market volatility,turnover rate and the market condition.(3)Under the overall situation,VEC-BEKK-GARCH model indicates that the spot market,future market and option market all have volatility clustering effects,and these three markets have mutual fluctuation spillover effects.(4)From the aspect of total volatility,there exists a spillover effect between the spot,futures and options markets.However,if the total volatility is divided into positive one and negative one,their information transfer path are different.From the aspect of continuous volatility,the spot market performs better than the future market.From the aspect of jump volatility,there is no lead-lag relation ship between these three markets.However,if the jump volatility is divided into positive one and negative one,the positive jump in the spot market will affect the future market and the option market,but not vice versa.During the sample period if this paper,the restrictions on future and option trading did not have a significant impact on their price discovery and volatility spillovers.