| Since China implemented its reform and opening up policies, an important characteristic of national economy is the rapid development of the capital market. When we talk about the capital market, people usually think about the stock market while neglect the futures market. That is mainly because the stock market grows bigger and much more quickly the futures market. Although the two markets started the same time twenty years ago, stock market surpassed futures market with the market scale and social influence right now in China. Futures market appears as an "unknown" market. The ordinary investor only think the futures market is a highly risk place with speculators. Now the situation has greatly changed with the Shanghai and Shenzhen300index futures list in April2010.Being the most important financial derivatives, stock index futures is based on some well known stock index. Generally, stock index future has three basic functions, that is, price discovery, hedging and arbitrage. The futures market could help manage the risk and establish a complete futures law framework. The stock index futures may also demolish the stock market. The stock index futures is not only tool of risk management, it also may induce the new market risk. The market manipulations happened in many countries before and disorder the stock market.Price discovery is the basis of hedging and arbitrage in stock futures market. The regulation polices are the key of stock futures sustained development. This dissertation will focus on the price relationship between stock market and futures market. In addition, the author will also explore how to regulate the stock index futures market better. The dissertation try to use research methods such as empirical research case study、theoretical analysis and compare analysis to extend the research. Main conclusions and research works are as follows.Firstly, the paper sums up the whole process and the background of China’s futures market. Implementing the stock index futures is very important to the stock market. The paper analyzes the basic market situation after the list of the stock index futures contract in detail. According to the analysis, the investor component needed to be changed. The market should attract more institutional investors such as mutual funds、banks、securities company and trust company. Right now the institutional investors are not familiar with the stock index futures market and worry about the risk. The government should take actions to encourage the institutional invertors enter the market with full prepare and help them cope with the obstacle. That will assure the stock index futures market run smoothly in the long run. The china financial futures exchange should hold on the regulations regime for suitability of investors and establish the on time trade information platform. Taking advantage of the good opportunity, the government prepares well to cope with the potential bigger regulation challenges.Secondly, the dissertation uses autoregressive conditional heteroskedastic (ARCH) model with dummy variables to test if the stock market volatility has significantly changed. The empirical studies show that the GARCH(1,1) model has a good fit in both time period no matter it is short run or longer run. In the GARCH(1,1)model, the coefficient of the dummy variable is not significant. That suggest the introduction of the stock index futures contract has not effect on the volatility of the underlying stock market. The stock index futures market is only a derivative of the stock market. It will not change the basic trend of the underlying stock market. The paper also established a EGARCH(1,1) model to test if the stock market has a leverage effect that is good news and bad news have differential effect on the conditional variance. The test result showed the presence of the leverage effect and the bad news increases the volatility. We also use pair wise t test to test if the stock market liquidity changed in the pre and post derivative period. There is no evidence to show the market liquidity has changed due to the introduction of the stock index futures. The empirical findings show that the derivative trading stabilizes the spot market trading and does not increase the spot market volatility and liquidity. The stock index futures market increase the overall spot market depth and informativeness. The derivative market has a favorable effect on the underlying cash market and reduces the spot mark volatility.Thirdly, the dissertation uses high frequency trading data to analyze the lead lag relationship between stock index futures price and cash price. The pair wise granger causality test suggests that the stock index futures price and spot market price are mutual granger reasons. Both the derivative and cash market have effect on the price process. The cointegration test show the derivative price and the spot price have long term equilibrium relationship. The stock index futures price does not diverge from but were closely linked with the stock spots market indices. The prices change dependently each other. We employ the VEC model to explain the price discovery of futures market. During the price discovery process, the derivative price change is mainly due to the market shock, while the spot price follows the change of the futures market. Empirical results confirm that futures market plays a dominant price discovery role, implying that futures price contains useful information about spot prices. The test findings also find that the futures price lead the spot price about two periods, that is five to ten minutes. In short, VEC model and cointegration theory have good fit effect on describe the price discovery process, the test results are reliable.Fourthly, the comovement between futures and spot price induce the cross market manipulation behavior. This part sum up the basic feature of the cross market manipulation and discuss the major measures to regulate the behavior. The major actions to improve the regulation levels include:keep focusing on the investor education and emphasize the monitor the abnormal trading activities; keep the regulation framework flexible to catch up the manipulation behavior change; attempt to construct a complete law about the manipulation; try to construct the information share system.Finally, the stock index futures need to resolve what to regulate, how to regulate and how to improve the regulation efficiency. The dissertation analyzes the stock index futures regulation principle and regulation object. Now the regulation should insist the three level model, that is the CSRC、exchange and futures association coordinate closely together. The regulation measures to improve the market efficiency include:refresh the regulation idea and guidelines and insist the market oriented regulation principle; avoid regulate overly or insufficiently; improve the regulation agency employees level by continuous training; Implement stronger and more effective supervision on the abnormal transactions and pay highly attention to the risky institutional investors; CFFEX should be charged with the important tasks of promoting the innovation and development of China’s financial market and building a world-class exchange through international competition; The futures association is responsible for the self-discipline regulation in the industry. The futures company is supposed to improve the sensitivity and response to market risks in their business with a higher sense of responsibility for the industry development.The contributions of the dissertation are as follows:1. Through the review of the history development process of China’s futures market and stock index futures market, the dissertation concludes some precious experience and lessons, which will help us do a better job in building a well-structured, well-functioning, safe and highly-efficient financial futures market.2. The dissertation analyzes the underlying stock market volatility and liquidity in the pre and post derivative period in detail. We employ the GARCH and asymmetric GARCH theory to construct the spot market volatility model. The models fit the real market very well. The findings suggest that the introduction does not increase the volatility and liquidity of the cash market at all. The results also relieve the public worries about the derivative market risk and provide suggestions for the government’s strategic decisions.3. The researches done by other scholars before had some inadequacies such as incomplete research methods or insufficient data and so on. The dissertation overcomes those shortcomings. High frequency transaction data has been used to construct the VEC model and cointegration model. The impulse response function and the granger causality test are employed to test the lead lag relationship. The empirical results fill out the same field research blank. |
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