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Intraday Price Reversals in the Index Futures Market:an Empirical Study

Author: HanChao
Tutor: RenPin
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Contrarian effect Momentum effect Intraday price error Behavioral finance
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 79
Quote: 0
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Abstract


Stock index futures is an investment and hedging instruments,it is very com-mon in developed countries. Over the years, it has been had wide attention from the academia. To study the characteristics of the stock index futures is very help-ful to us. These st-udies will facilitate the the healthy development of financial fu-tu-r-es markets.April16,2010, China introduced the first financial futures of this country-CSI300stock index futures. We must recognize t-hat the foundation of the devel-opment of the CSI300stock index futures is relatively weak. First, the Chinese stock market is f-ar from perfect and the means of the transaction is not well dev-eloped, the structure of the traders is also uneven. Second, the d-evelopment of futures investment fund is also weak. This shortco-ming means that the ex-panding of the scale of the futures marke-t trading,making it become a new way to invest and increase m-arket liquidity is difficult. Third, the brokers, as a whole, the le-vel of development of them is not high, although the futures mar-ket was intro-duced in China earlier, however, the level of the fut-ures broker failed to reach a pefect level. The competition betwe-en the brokers failed to improve their service quality and R&D levels.However, we should see that, when the financial crisis in2008, the Asian, es-pecially the East Asian, their stock index futures trading volumes are rising by a big margin. South Korea, Japan and other Asian developed countries greatly pro-moted the develop-pment of the interest rate futures and foreign exchange futures a-nd other financial futures by developing the stock index futures. From the point of these facts, China’s CSI300stock index futures development can has a huge role in promoting on the economy’s development. Therefore, the Researching of the stock index fu-ture’s nature should be vigorously promoted. These works shoul-d also have more far-reaching theoretical significance.In this paper, We observe intraday price reversals following large price changes at the opening of the CSI300Futures market We note that the magnitude of subsequent price reversals is pos-itively related to the initial price changes, and that the price rev-ersals are not caused by a ask-bid spread, or by panic among investors. We also note that such price reversals can be exploited to give rise to profitable opportunities after transaction costs, e-ven though these may not be very significant. This study shows that investor overreaction may be a universal phe-nomenon and irr-ational investor behavior like overreaction may also exist among groups of sophisticated investors.

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