The Price Discovery Function Of The SSE 50 Stock Index Futures And Its Impact On The Pricing Efficiency Of The Stock Market

In April 2015, the Shanghai 50 index futures gets into the market, aiming to perfect the risk hedging mechanism and enrich the short-selling means of the capital market,improve the market efficiency and reduce the systemic risk. But now, our market is not mature enough and our investors are also not rational enough. Besides, a market crash occured and the CFFEX issued strict trade restrictions in 2015. Therefore,whether the launch of stock index futures can have a positive effect on the market is a question.This paper is to explore the price discovery function of SSE 50 index futures and its effect on the stock pricing efficiency. First, the sample interval is divided into the unstable and the stable period of the market, using daily data and five-minutes high frequency data from April 2015 to April 2016, this paper test the interactions between stock index futures and stock index by calculating the dynamic correlation coefficient with DCC-GARCH model. Then this paper analyses the long-term equilibrium and short-term relationship between stock index futures and stock index with cointegration test and VECM model. Based on the VECM model, this paper use IS information share model to calculate the contribution of stock index futures and stock index to price discovery. Besides, quantile regression is introduced to analyze the effect of stock index futures under different market conditions. Finally, DID double difference model and panel data model are established to analyze the influence of the launch event on the lag coefficient of stock price adjustment to decide whether SSE 50 index futures has a significant advance on market pricing efficiency.The empirical evidence shows that the index futures and stock index have a high correlation from both daily data and five-minutes data. In the first half of a year, the stock index futures fails on hedge function because of the stock crash, and it even pushes the market fall. Half a year later, the price discovery function of the stock index futures is becoming effective but is stronger when the market is positive. And there is a two-way guidance relationship between the two. A further study shows that the launch event has a significant improvement on the pricing efficiency when the market is positive while the effect is not obvious when the market is negative.In general, the launch of SSE 50 index futures has a positive effect on the stock market and the market pricing efficiency is improved. But the price discovery and risk hedge function is still not fully effective due to the system design, trade supervision and investor psychology. So we should perfect system design and lead investors to a reasonable and effective use to improve its function and reduce its risk.