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An Empirical Study on the Relationship between the China Stock Index Futures and Spot Markets

Author: NieLi
Tutor: ZuoJianZhou
School: Northeast Normal University
Course: Finance
Keywords: BEKK-GARCH model Maximal overlap discrete wavelet transform Granger causality Stock index futures Volatility spillovers Price discovery
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 101
Quote: 0
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On April 16, 2010, the Hushen300 stock index futures contract was officially listed. From then on, the relationship between China stock index futures and spot markets, especially for price discovery and volatility spillovers, has been studied extensively. Profound understanding about the volatility spillovers relationship between futures and spot markets as well as the price discovery function is of great importance, since it has really important policy implications for the future development of China capital market.At the beginning, we investigate their own characteristics and differences through the comparative analysis about Hushen300 index futures and the SGX FTSE Xinhua A50 index futures. After a brief review about the developing process, we compare the main contents, operation rules and regulatory regime between the two contracts. It provides much worthy learning information for the further development and perfection of China stock index futures market.Next, based on the summary review about the relevant literatures, the paper investigates the volatility spillovers relationship between the Hushen300 stock index futures and Hushen300 index through the BEKK-GARCH model proposed by Engle and Kroner (1995). Empirical results show strong evidence that the futures market and spot market have an obvious fluctuation spillover effect on each other. However, the spot market increased the volatility of futures market, while the futures market weakened the volatility of stock spot market greatly. At the same time, this paper also studied the price discovery relationship between the futures market and spot market using the Granger causality test based on the Maximal Overlap Discrete Wavelet Transform. The results show that a bi-directional price discovery process between two markets could be found at the longer time scale.In addition, based on the empirical results and the present situation of China financial market, this paper holds that China should continue developing and perfecting the spot market, strengthen the market risk supervision, and gradually establish a cross-market supervision system.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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