Dissertation > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods

A Study about the Stock Index Future’s Influence on the Stock Market

Author ZhaoZuoLei
Tutor LiuDeHong
School Beijing Jiaotong University
Course Finance
Keywords Stock index futures price discovery information efficiency volatility hedging
CLC F224
Type Master's thesis
Year 2011
Downloads 529
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The long-awaited CSI 300 stock index futures contracts traded on April 16,2010. The introduction of stock index futures will drive the financial system more sound and perfect and play an important role on the spot market risk management and the optimization of asset allocation. Stock index futures market has only traded for one year. The majority of investors still have some doubts about stock index futures that whether stock index futures play the function of price discovery, hedging, risk transfer and the impact of stock index futures on the spot. For these questions, this paper will make empirical research on the impact of CSI 300 stock index futures market on the spot market.Price discovery, hedging and information dissemination are the three major economic benefits of stock index futures. As the two major functions, Price discovery and hedging stock index futures market are close. Price discovery is the basis for hedging and hedging activity will also promote price discovery. This article analysis the impacts of index futures stock on the spot market from the two major functions. This paper use the data of return series of the main CSI 300 stock index futures contracts and spot market and the empirical results of Johansen cointegration test, error correction model, impulse response functions and variance decomposition of the show that the CSI 300 stock index futures and spot prices have a long-term and stable cointegration relationship; the futures market price plays a leading role in the discovery process which also shows the stock index futures have information superiority with respect to spot prices. The TARCH model shows that the stock index futures have improved the information efficiency of the spot market. In the long run, the information transmission function and the price discovery function will improve the effectiveness of the spot market.Hedging is our intention to introduce stock index futures. This paper uses OLS method, B-VAR and error correction hedging model, makes the shanghai 50ETF and shanghai 180 ETF as the investment portfolio and analysis the daily, weekly and bi-weekly effects of hedging. The results show that CSI 300 stock index futures have good hedging effects and reduce the loss of cash assets.The index futures have just traded for one year and stock index futures markets are extremely small compared with the spot market from the scale of market value, number of investors, investor structure and trading funds. The index futures has little effect on the spot market and will take some time to play the price discovery, hedging, asset allocation and other functions completely. The individual investors are the main investors in Chinese stock index futures market and there are many speculators.The institutional investors in hedging are too little and this makes against the various functions of stock index futures. Therefore, the stock index futures trading strategies of institutional investors need further study.

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