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The Information Efficiency of Stock Index Futures in China

  • Qianwei Yi
  • Ziying Liang
Conference paper
Part of the Lecture Notes in Electrical Engineering book series (LNEE, volume 242)

Abstract

This paper investigates whether the recent introduction of Index Futures in China has reduced volatility in the underlying spot market, and whether the index futures market effectively serves the price discovery function in both the short run and the long run. Applying GARCH model, we find that the volatility on CSI 300 Index was alleviated due to the emergence of the index futures. Moreover, the Granger Causality test figured out that in the short run, futures index market and the underlying stock market have reciprocal causation relationship but the causation effect from futures index market to spot market is relatively weaker. Johanson Cointegration test and VECM Model further revealed that the index futures market and the spot stock market are cointegrated while the index futures market responds more swiftly to new information than the spot stock market. The results of this paper verify that the index futures market in China does play the role of price discovery and information transfer, although it needs further improvement.

Keywords

Stock index futures Volatility Price discovery Information efficiency 

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Notes

Acknowledgments

We are grateful for the financial support from National Science Foundation of China (No. 71003108) and Scientific Research Foundation for New Talented Faculty of Sichuan University in China.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Business SchoolSichuan UniversityChengduPeople’s Republic of China
  2. 2.Yuexiu GroupGuangzhouPeople’s Republic of China

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