Trading Restriction And Futures Market Quality

Stock index futures is an important component of financial market with the function of risk hedging and maintaining financial market stability.The leveraged trading and two-way trading characteristics of Chinese stock index futures can easily lead to the further amplification of financial market volatility risk due to its immature regulation and high proportion of individual investors.Chinese stock index futures suffered strict trading restrictions since 2015,when stock market experienced the market crash.Although the strict supervision makes index futures market more stable,it also leads to serious damage to the liquidity and activity of the market.It his us thinking,what is a "good" stock index futures market? How to supervise to make Chinese stock index futures market a "good" one?Considering this,we investigate the impact of trading restriction on Chinese stock index futures market,and analyze its internal mechanism.Furthermore,we explore the key factors that affecting the operation of Chinese stock index futures market.Firstly,we observe CSI300 index futures market performance from four aspects include volatility,liquidity,price discovery and degree of speculation before and after the implementation of trading restrictions.We conclude that the restrictions reduce the market fluctuation and the level of speculation at the expense of the liquidity and the function of the stock index futures market.Secondly,we examine the changes of maturity effect of the CSI300 stock index futures before and after trading restrictions and its internal mechanisms.Empirical results show that the volatility of the CSI300 index futures shows diametrically opposite maturity effect after the implementation of the trading restrictions,and the key reason is that the regulatory policy leads to a change in the sensitivity of futures contract prices to information-driven speculative trading.These results provide direct evidence to support the speculative effect mechanism.In the third part,we focus on testing the impact of investor sentiment on the risk management and price discovery capabilities of CSI 300 index futures before and after trading restrictions,thus to investigate the mechanism of the impact of trading restrictions on the function of the stock index futures market.We find that investor sentiment is another key factor affecting the operation of CSI 300 index futures market as well as a decisive factor affecting the effectiveness of regulatory policy.In the absence of strict trading restrictions,high level of investor sentiment will lead to high volatility,high bid-ask spread and slow price response to information.While under trading restrictions,the increase in investor sentiment will promote the function of the risk management of CSI 300 futures market,but it will also cause a more serious negative impact on its short-term price discovery ability than before.In the fourth part,we construct a comprehensive quality index for CSI300 index futures market to evaluate its operation level on the whole.We found that the quality of stock index futures market has suffered a serious impact due to the loosening of speculative position restrictions in 2015.Although the implementation of trading restrictions has restored it to some extent,in the long run,the market quality has not reached the previous average level.Moreover,we put forward the reasonable operating range of supervision on the market activity and speculation degree.We find that there is an asymmetric inverted U-shaped relationship between the contract-average activity of CSI300 index futures and the market quality,while there is a symmetric inverted Ushaped relationship between the average speculation level and market quality.The results suggest that policy formulation should give priority to the change in the activity of CSI 300 index futures market and control it not to be higher than 0.25 while ensuring the average speculation level is not less than 4.In summary,this paper supplements the existing research results on investor behavior and stock index futures market performance,and helps to deepen the understanding of investor behavior and its role on the basis of behavioral finance theories.In practical,this paper confirms the duality of regulatory behavior and speculative trading behavior in the stock index futures market,helps to show up the supervision direction,timing and intensity.Our research provides effective guidance for Chinese regulators to achieve scientific supervision and promote the sustainable development of the stock index futures market.