The Impact Of The COVID-19 On The Price Discovery And Volatility Spillover Of Stock Index Futures

In 2010,China’s first futures contract,the CSI 300 stock index futures,was launched,further improving our country’s financial market.The interactivity of futures and spot market is an important guarantee for hedging and avoiding risks.The price discovery and volatility spillover of stock index futures are important manifestations of the interactivity of two markets.However,many scholars had questioned the function of the futures market,since the outbreak of the stock market crash in 2015.Many views attributed the cause of the stock market crash to stock index futures,and scholars have also had debates on the function of futures price discovery and risk avoidance.The sudden outbreak of COVID-19 has greatly affected the global financial markets,with the CSI 300 stock index futures and the CSI 300 index all falling to varying degrees.Under the impact of COVID-19,whether the volatility of the CSI 300 index will be affected by the volatility of the futures market becomes the starting point of this study.Studying the impact of COVID-19 on the price discovery of stock index futures can help investors and regulators better understand stock index futures.However,in the past literature,this paper found that the research on the relationship between emergencies and the two markets is limited to traditional finance,ignoring the irrational emotions of investors.From behavioral finance,the role of investor sentiment under the impact of emergency are analyzed in this paper.This paper selected the high-frequency data to construct the VAR-VECM model,and found that the price discovery function of stock index futures weakened after the outbreak of the epidemic.By adding investor sentiment measured by the Baidu index into the VAR-VECM model,the results show that investor sentiment is negatively correlated with the futures price discovery function.Subsequently,the paper constructed a DID model under the whole sample,and obtained results consistent with the VAR-VECM model,which proved the robustness of the VAR-VECM model.Then,this paper established a more informative intraday rate of return,namely realized volatility,constructed DY spillover index,and analyzed the risk transmission relationship between CSI 300 stock index futures and spot.The results show that with the outbreak of COVID-19,the volatility of futures and spot market will be strengthened by their own influence,while the spillover effect on each other will be weakened.Net spillover measures,however,show an increase in asymmetric spillovers in futures and spot markets after the COVID-19 outbreak.This paper then used the DY spillover index and investor sentiment index to perform regression analysis,and found that investor sentiment had different performance of volatility spillover in different periods.Before the COVID-19 outbreak,high levels of investor sentiment would have exacerbated the spillover of CSI 300 futures and the CSI 300 index.High level of investor sentiment in the wake of the COVID-19 outbreak should dampen volatility spillovers of two markets.Subsequently,the bivariate GARCH model proved that the main model of volatility spillover is robust.Finally,this paper proposes that the stock exchange should carry out reasonable control over the stock index futures and spot market,especially focusing on the manipulation behavior of institutional investors,improve information disclosure and investors’ understanding of two markets,thus improve the ability of stock index futures market to stabilize the capital market when the emergency occurs.The innovations of this paper are as follows:(1)This paper ties together unexpected events,investor sentiment,futures and spot relations to explore the effects of investor sentiment on stock index futures price discovery and volatility spillover under different capital environments.(2)When exploring the impact of emergencies on the volatility transmission,considering that the GARCH model used by most scholars in the past is relatively limited,this paper adopts the realized volatility with more information content based on high-frequency data to construct the time-dependent DY overflow index,and the results obtained are more timeliness.