The Effect Of Index Futures Trading On The Volatility Of The Stock Market

Since the 1980s,America introduced the first stock index futures contract,the impact of stock index futures trading on the stock market has been a hot issue in academia.However,there hasn't been a consistent conclusion formed yet.The conflicts lie in whether stock index futures help with the stabilization of the stock market or not.Its price discovery function can help investors form an effective forecast for the stock market trend,and its hedging function can effectively hedge the market risk,while its highly leveraged and procedural transactions will exacerbate the volatility of the stock market,especially when the market crashes.China's stock index futures market opened so late that it was not until April 16,2010,the first stock index futures-CSI 300 index futures was listed,which ended the long-term unilateral trading mechanism.After then,CSI 300 index futures acted as a single species widely used in market risk hedge for a long time.Till April 16,2015,SSE 50 index futures and CSI 500 index futures were listed together,which enriched the product species and met with the investors' needs for hedging the risk of blue chips and small cap stock.Whether stock index futures have reduced the volatility of the stock market and played a positive role in stabilizing the stock market remains a main focus for investors and regulators,which directly affects the risk management and resource allocation of investors and regulatory policy development and followed-up innovation derivatives design of regulators.Hence,it is of great importance to providing reference for investors and regulators to trace with the real transaction data.Focusing on the stock and futures of CSI 300 index,SSE 50 index futures and CSI 500 index and using the 5-minutes high-frequency trading data,this paper analyze both the launching effect of index futures and the react of spot markets when the futures markets impacts.Firstly,with a dummy variable added to the TGARCH model,we study the coefficients to acknowledge the effect of index futures on stock markets.Secondly,we construct the VECM model and further carry out the Granger causality test,impulse response and variance decomposition to study the impact of stock market futures market on the stock market.The conclusions are as follows:1.The transactions of stock index futures can truly reduce the volatility of the stock market to a certain extent.However,the weaken effect is so limited at this time,and the weaken effect of the SSE 50 index futures and the CSI 500 is smaller than that of the CSI 300 index futures,partially because the two only launched for a short time and the effect of stock market crash.2.In the long run,there is a stable long-term equilibrium relationship between stock and futures prices.In the short term,when the stock index futures and spot prices deviate from the equilibrium state,the arbitrage function of index futures will enable investors to respond quickly,so that the price of stock index will return to the balanced state.At the same time,Granger causality test shows the two are inter-Granger causality,and there is a mean spillover effect between the two markets.As a whole,the futures market dominates the stock market,but not the other way around.That is,the stock index futures act truly act the price discovery function,which helps with the circulation of the stock market information and the stability of the stock market.At present,the stabilization effect of stock index futures on stock market volatility is still relatively limited.Regulators should continuously take measures to promote the perfection of stock index futures market.The specific measures include:perfecting laws and regulations,strengthening market supervision;breaking the stock index futures and stock market barriers to achieve cross-market regulation;establishing risk prevention mechanism;improving investor structure and increasing the contribution of institutional investors;and strengthen the standardization of the stock market.This paper is divided into five chapters.The first chapter is the introduction,which introduces the background,research significance and frame structure and so on,and reviews the related literature at home and abroad.The second chapter is stock index futures and its practice in China,in which the emergence and development of stock index futures,function and operating mechanism and the practice in China are introduced;The third chapter describes influence mechanism analysis and model construction,where we qualitatively analyze the impact mechanism,and construct the model.The fourth chapter is the empirical part,where we analyze both the impact of the list of stock index futures and the react of stock market when facing the attack of the index futures market.The Last chapter concludes along with some police suggestions.