A Comparative Research Between The CSI300 Futures (Mock Trading) And The HSI Futures In Price Discovery

Stock index futures are ones of the most important parts of the financial products system in a mature capital market. They act as the pricing center of a capital market for their rapid response of the macroeconomic trends, market information and investors' sentiment. Low costs, high liquidity, transparent information disclosure, as well as their permission of short selling, favor most investors. Further more, as we learn from the textbook, Stock index futures play three important roles of price discovery, hedging and speculation.In China, it was established the China Financial Futures Exchange in September, 2006. Its first product, Shanghai Shenzhen 300 Index (CSI300) futures, started mock trading 2 months after that. How do the CSI300 futures work and how well the CSI300 futures work during their mock trading? How far are the CSI300 futures from the mature Hang Seng Index (HSI) futures? The regulatory authorities and billions of investors pay close attention to these questions.This paper tries to answer the questions above by discussing the difference between the CSI300 futures market and the HSI futures market in market characteristics, futures and spot price relationship, and structure of market participants. By analyzing and mining 5-minute data from March to November, 2008 in the framework of VAR model, it reaches the final conclusions as follows: (1) The HSI futures play the core role of price discovery in Hong Kong capital market, which deserves its title of the international finance center. (2) Although lacking of arbitrage mechanism, the CSI300 futures (mock trading) still lead the index spot during the period of time under study. (3) The regulatory authorities should improve the price discovery function of the CSI300 futures by strengthening information disclosure, increasing stock supply, perfecting arbitrage mechanism, reinforcing risk management, and upgrading quality of investors.