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Temporal relationships and dynamic interactions between spot and futures stock market in China

English Abstract

Futures markets are considered important to facilitate the price discovery process. In China, the Chinese Security Index 300 (CSI 300) Index Futures was first introduced on Apr 19, 2010. This paper examines available data on the newly established index futures contracts and investigates their informational role in the market. Studies in this paper are motivated by the absence of similar research in the Chinese index futures market and the growing importance of the Chinese economy. Employing Engle-Granger cointegration tests and error correction models, the price transmission process between the spot and futures prices in the CSI 300 Index is examined. The empirical results provide evidence that the stock market leads the index futures market in the long run and that the spot market plays an important role in the price discovery process. Second, by utilizing the switching GARCH model, the paper addresses whether the introduction of the CSI 300 index futures has significant impact on the stock market volatility. The result suggests that the existence of the index futures market has decreased the unconditional volatility. Besides, after the index futures listing, there is a structural change occurred in the conditional variance of the underlying stock market. The volatility shocks becomes slowly assimilated and digested in the stock prices. Third, the paper further investigates whether the introduction of the CSI 300 index futures affects the price efficiency of the Chinese market. The findings indicate that the establishment of the index futures substantially lowers the informational efficiency of the stock prices. Findings in this paper can enrich the existing literature and provide implications to market participants, academicians and regulators.

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Lei, Ka In


Faculty of Business Administration


Department of Finance and Business Economics


M. Sc.


Stocks -- Prices -- China

Futures market -- China

Stock exchanges -- China


Ren, Jin Juan

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