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Research on the Impact of the CSI 300 Stock Index Futures on the A-share Market

Author: LiuXin
Tutor: ShiYongDong
School: Dongbei University of Finance
Course: Financial Engineering
Keywords: CSI 300 stock index futures volatility in stock market systematic risks liquidity
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 146
Quote: 0
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Abstract

Despite the huge effect on the financial market caused by the financial crisis in 2008, and the global financial market suffers dramatic fluctuations, the stock index futures market keeps growing. Along with the rapid development of the stock index futures, the functions of them have been shown completely, which has improved the efficiency of mitigating risks, and now the stock index futures have become an indispensable tool of risk management.On 16th April,2010, the CSI 300 stock index futures were listed formally, and become a fundamental tool of risk management and an important content of the internal stabilization of the stock market in our country which they have a far-reaching effect on. During the preparation before being listed, the detrusion of stock index futures has followed a circuitous route, one of the very important reasons is that people are lack of knowledge about stock index futures and not sure about how the stock market will be affected after the stock index futures become listed. As the stock index futures have a fairly large leverage effect, it’s worth for us to consider whether stock index futures will bring dramatic fluctuations to the stock market or not and how it is going to affect the stock market, and the dispute about the effect of stability that stock index futures bring to the stock market continues. Even though stock index futures have always been very welcome in industry, are developing rapidly in the global market, and having bigger and bigger effect, but existing researches mainly consider about problems of pricing, but not deep enough on cognitions of the effect that stock index futures bring to the stock market. After the recent international financial crisis, stock index futures formally landed the stock market in our country. Studying other countries’ experience and the effect that stock index futures bring to the stock market deeply have significant meanings to the development of stock index futures and the stability of the financial market in our country. Nowadays, Mechanisms and influencing extents of effects of A-share market from stock index futures have been included in the main points of researches by The Securities Industry Association. The CSI 300 stock index futures have attracted extensive attentions before they are listed, the effects that the CSI 300 stock index futures bring to the stock cash market have always been a focus point by numerous scholars. Despite many researches about the effects that stock index futures bring to the A-share stock market exist, but only a few of them are empirical. Since the CSI 300 stock index futures have just been detruded, there aren’t many datum and mature operations. Compared to countries with mature research results, there is a large space to improve. Despite several scholars researched on the volatility effect that futures market brings to the stock market, because of lack of data, the empirical researches on the effects of the systematic risk and liquidity that stock index futures bring to the stock market are also blank.This article tidies up corresponding research results, studies and explains about the effects that the CSI 300 stock index futures bring to the A-share market slightly more deeply, especially on the volatility and liquidity effects and the effect of systematic risk effect that CSI 300 stock index futures bring to the A-share market and the effect of systematic risk caused by the detrusion of CSI 300 stock index futures, expecting the relationships in between will appear more clearly after studying.This article starts from tidying up the knowledge and theories of the stock index futures that are already known, giving some descriptions about stock index future: firstly and showing their main features and functions, this also analyses where the theories of effects that stock index futures bring to the cash market come from. And then, it states and compares theories research results of the effects stock index futures bring to the cash market by scholars in our country to fully explain the possible effects that can be caused by CSI 300 stock index futures. After that, this article studies the volatility and liquidity effects and the effect of systematic risk effect carefully by empirical researches using GARCH Model, ILLIQ, and CAPM Model respectively to analyze CSI 300 stock index. Finally, it concludes from the results of empirical researches and giving some policy suggestions, which may improve the efficiency of the futures market and ensures a healthy and positive development of the futures market in our country.The innovation points in this article are:based on sufficient data support, using GARCH Model to study the volatility effects that futures market brings to the stock cash market; and the liquidity effect and the effect of systematic risk that the detrusion of CSI 300 stock index futures bring to the A-share market.

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