The Impact Of FTSE/Xinhua China A50 Index Futures On China's Domestic Securities Market

On September 5, 2006, the SGX FTSE Xinhua A50 Index Futures formally launched, which is the world's first SIF subject to China A-shares index, and is also the first A-share SIF listing in the offshore market, the launch of which had a strong reaction in China's capital market. Stimulated by this, China has accelerated its preparations for listing of it's own SIF. On September 8, 2006, China Financial Futures Exchange(CFFC) established in Shanghai ahead of time. So far, A50 Index Futures has been running for a year and a half. From the practical operation, it can be said that A50 Index Futures is unsuccessful, after the short flash in initial time of listing and then quickly subsided, its trading volume remained relatively little nowadays. What kind of impact does A50 Index Futures has on China's securities market? why it is unsuccessful? Should China's own SIF products be introduced as soon as possible? These problems are the focus of the researchers, the governor and the investors.Since the world's first SIF listed in the United States, there are a great deal of literatures about the impact of SIF on the spot market at home and abroad, but there is fewer literatures about the offshore listing of SIF. And due to its short listing time, there is few positive research on A50 Index Futures. Therefore, we try to make a positive research on A50 Index Futures, learning from the foreigner experience, using econometric model, according to the data of A50 since it running.There are three aspects we try to analyse. First, through the description of the operation on A50 Index Futures, we find the To-Expire-Day effect; Secondly, using the Granger Causality Test model, we studied the lead-lag relations between A50 index and A50 index futures, the results showed that A50 Index Futures has no function of price discovery, just follow the A-share market fluctuations; Finally, using the GARCH models, we studied three indices - A50 index, the Shanghai and Shenzhen 300 Index and the Shanghai Composite index, the results showed that the volatility of the three indices increasing after the launch of A50 index futures. We also try to find the other reasons of volatility increasing. However, due to the lack of theoretical, the paper failed to distinguish between the factors on the volatility of the specific and quantitative impact.After the empirical research, we made a simple analysis of the reasons why the A50 Index Futures is unsuccessful. The existence of legal risk, the control of the capital market and foreign competitive markets led to the unsuccessful of the A50 Index Futures. However, if we do not adopt measures, there will be similar offshore listing SIF products, which will eventually seriously affected the China's mainland stock market. In the final of this paper, we made some policy suggestion.