The Influence of Stock Index Futures to China’s Stock Market Volatility
|School||Dongbei University of Finance|
|Keywords||Stock Index Futures Volatility HS300 Index GARCH Model|
China’s capital market has been more and more developed after 20 years’ construction. The development is accelerating in recent years. The stock index futures was introduced on April 16,2010, which means a lot to China’s capital market. The introduction of stock index futures had been argued carefully by related sectors for years. In order to make investors be familiar to the trading rules and risk of stock index futures, the trading simulation was introduced by China Financial Futures Exchange in October 30,2006. Since then, the influence of stock index futures to China’s economy has become a hot topic. Nowadays, the influence of stock index futures to China’s stock market in the volatility, liquidity and other aspects is even more worthy of our attention and research.Volatility is the degree of market price fluctuation caused by reaction to information, which is used to measure the risk of market. As a feature of financial markets, volatility plays an important role in the reflection of securities market’s quality and efficiency. Therefore, the influence of stock index futures to stock market volatility is paid great attention all over the world.Stock index futures was introduced earlier abroad. Therefore, researchs on the influence of stock index futures to stock market volatility are more concentrated in foreign markets. Research on the influence of stock index futures to China’s stock market volatility is particularly less. Based on this, referring to foreign research results, this paper makes empirical analysis on China’s stock market volatility after the introduction of stock index futures, which may be helpful to stability analysis of China’s capital market and to risk prevention of securities market. This paper is divided into four chapters, which reads as follows:Chapter 1 shows the background and significance of this research as well as the structure and innovation of this paper. Chapter 2 provides a brief overview of the stock index futures, including the meaning, characteristic, economic function, emergence and development of it. The second part of the chapter reviews the domestic and foreign literatures on the influence of stock index futures to the volatility of the stock market respectively, and appraises them briefly. Chapter 3 makes the empirical analysis, which is the core of this paper. Firstly it introduces the HS300 Index and the HS300 Index Futures Contracts. Secondly it describes the research method and data of the empirical analysis, including the econometric model, the selection and processing of the sample data and the analysis and forecasting of the possible results. Lastly it gives a descriptive analysis of the data, a stability test of the data, an estimate of the model and a derivation of the corresponding empirical results. Chapter 4 states the conclusion and recommendation of this paper. It comes to the conclusion according to the empirical analysis results, speculates the reason and puts forward policy suggestions.This paper integrates the longitudinal study and the time series analysis, comparing the stock market volatility before and after the stock index futures was introduced.In order to investigate the volatility changing with time and the relationship between information and volatility, this paper selects the Generalized Autoregressive Conditional Heteroscedasticity(GARCH) model to measure the change of volatility.The empirical result shows that the volatility of the HS300 Index has decreased after the HS300 Index Futures was introduced. The information transmission speed has changed, too. Specifically, after the introduction of HS300 Index Futures, the influence of recent information to future volatility has increased, while the influence of past information to future volatility has decreased, which means the information transmission has accelerated in China’s stock market.Therefore, in view of the information transmission speed and the influence on volatility, the introduction of HS300 Index Futures enhanced the stability of China’s stock market.According to this conclusion, it is recommended that on one hand, the investor structure should be further improved. The actively participating of institutional investors in stock index futures can help to realize the hedging function. On the other hand, the variety of the stock index futures should be further expanded to meet the needs of different types of investors. The innovation of this paper is listed as follows. Firstly, the latest evidence of stock index futures’influence on stock market volatility is put forward, for the research object is HS300 Index Futures, which was introduced merely one year ago. Secondly, not only the conclusion is deduced that stock index futures can reduced the stock market volatility, but also the sensitive degree of stock market to information is analyzed and the reason is estimated. The shortcoming of this paper is that although the influence of stock index futures to stock market volatility is mainly qualitative analyzed, the quantitative analysis of the relationship between the stock index futures market and the stock market is lacked.