Research On Microstructure And Investment Strategy About Index Futures Based On High Frequency Data

On April 16, 2010, China launched the CSI 300 index futures, It is urgent to study the operation of CSI 300 index futures because the experience of index futures is instructive for the introduction of other derivatives, such as stock futures, options. Market microstructure studies the process by which investors’ latent demands are translated into prices and volumes, thereby reveals the impact of trading mechanism, market structure, investor behavior on asset’s price. The study of microstructure of CSI 300 index futures helps to analyze the operateion, then improve the trading mechanism, and high frequency data facilitate it. Due to T+0, CSI 300 index futures facilitate high frequency trading. High frequency trading is able to respond quickly to market changes, but some scholars have pointed out that high frequency trading increase market risk. The study of microstructure of CSI 300 index futures provide a reference for the development of high frequency trading risk aversion measures. Investment strategy is the collection of rules that guide investment and is based on the rules of the market operation, it deepens the understanding of market microstructure.There are abundant studies on the microstructure of stock index futures abroad, while domestic research is still relatively fragmented. This paper follows the route that index futures microstructural features- microstructural features guide investment- investment strategy feedback microstructure, and uses theoretical analysis and econometric methods to studies the microstructure and investment strategy of CSI 300 index futures. The structure and results of this paper are listed below.In ord to test intraday pattern, it uses Wilcoxon rank sum test to study the intraday characteristics of return, volatility, volume and open interest of CSI 300 index futures, and finds that there are significant intraday pattern for return, volatility, volume and opent interest due to trading mechanism and investor behavior. The results infers that intraday pattern exists in order-driven market, not just in dealer market. It enriches microstructure theory, and is instructive for investors, and also for regulators in supervising market manipulation.To explore the mechanism of price formation, this paper uses ARMA-EGARCH, VAR, Granger causality test to study the dynamic relationship between return, volume and open interest of CSI 300 index futures, and finds that volume has a positive impact on price volatility, while open interest has a negative impact on price volatility, the CSI 300 stock index futures market is efficient. The results refer that the price of CSI 300 index futures is sensitive to information dissemination, and investors response to volatility immediately.To study the price relationship between index futures and spot, it uses VECM, BEKK-GARCH, TGARCH methods to study the relationship between CSI 300 index futures and CSI 300 index, including price discovery, volatility spillovers and the effect of futures on spot market’s information efficiency, and finds that CSI 300 index futures play a dominant role in price discovery, and there is bidirectional Granger causality between futures and spot price, furthermore, there is bidirecitonal volatility transmission between spot and futures markets, the volatility spillovers from spot to futures are higher, and shocks in futures market have asymmetric spillovers, the introduction of CSI 300 index futures improve the information efficiency of spot market. The results indicate that price of CSI 300 index futures is related to index, and trading restrictions influecne the information efficiency of index futures market, and find evidence of across-market manipulation in the view of micostructure. It is recommended that regulators ease restrictions and vivify the index futures market.In order to test the effectivity of microstructure characteristcs in guiding investment, this paper uses ARMA, statistical simulation, and nonparametric test to study the reliability of investment strategy based on intraday pattern of return, return autocorrelation, technical analysis and index arbitrage, and finds that the intraday pattern of return in the morning close and afternoon open stages is stable, return autocorrelation cannot get stable profit when take into accounting transaction costs, technical analysis cannot get stable abnormal return since CSI 300 index futures market is efficient, the high profit of technical analysis comes from data snooping, there are a lot of reverse cash and carry arbitrage opportunities due to financing risk and spread risks. The results further verify the exist of intraday pattern in order-driven market and that CSI 300 index futures market is efficient. Moreover, it answers the debate of the feasibility of technical analysis between academics and practitioners, and enrich limits of arbitrage theory, also deepen the understanding of microstructure of CSI 300 index futures.In conclusion, this study enriches the market microstructure theory and the limits of arbitrage theory, and helps academics and investors to understand the impact of trading mechanism on investor behavior and market microstructure. Also, it has important implications for investors in decision-making, and regulators in market surveillance and introducing new derivatives. With the CSI 300 index futures market matures, it is recommended that study the reasons for the microstrucuture characteristics of CSI 300 index futures using ultra high frequency data and trading account data.