Empirical Research On Lead-Lag Relationship Between Futures And SpotStock Markets

The price trends between spot and futures prices in the stock market have always been important research topics for both the academic and the finance world.In addition to those researches on topics such as price estimation and attribution analysis of spot and futures prices separately,there are even more studies focusing on the correlation and the causal relationship between the two.The Chinese stock and futures markets not only started long after but also are less mature than those of the developed counties,However,as the Chinese financial system becomes more regulated,we are now provided with enough data samples and variables to study the two in depth.This paper uses tick-level high frequency data to study the leading and lagging relationship between stock prices and index futures prices under various market conditions.To be precise,we use the CSI 300 spot prices and the CSI 300 futures prices between 2014 and 2016 taken every half second as the data sample.By taking the correlation test,stationarity test,cointegration test and Granger causality test,we notice that there does exist a causal relationship between the Chinese stock market and the index futures market.Furthermore,we take a closer look at the 2014 and 2015 data taken every 72 days and discover that the leading and lagging effects between stock prices and index futures prices varies with different stock price level,trading volume and even under different regulatory policies.In particular:1.When the overall trading volume is large,the index futures market has a stronger leading effect of the stock market,with a higher explanatory power.2.When the index futures' market has a larger trading volume that that of the stock market,the index futures market presents a stronger leading effect;Otherwise,the stock market shows a stronger leading effect.3.During times when the stocks prices in both Shanghai and Shen Zhen market decrease with relative large speed and magnitude,the index futures market has a stronger leading effect.Based on changes of regulatory policies,this paper examines quantitatively the effect of different factors on the leading and lagging relationship between the two markets using Tick-level data.In real world,the results allow us to determine if one should treat the leading effect as a factor,and to adjust quantitatively the factor weight associated with it.