Empirical Research On The Impact Of The Introduction Of Stock Index Futures On The Validity Of The Spot Market, Liquidity And Volatility

After smooth opening of ChiNext, the introduction of stock index futures became the focus of attention. As a low-cost tool for stock market investors to manage the investment risk and adjust the asset allocation, stock index futures have flourished all over the world since Kansas City Board of Trade(KCBT) launched its first stock index futures contract in 1982. As an investment tool, stock index futures may change the liquidity of the cash market. And as a hedging tool, it may also change stock investors'investment behaviors. It changes the cash market from many aspects.This paper focuses on the cash market's efficiency, liquidity and volatility before and after the introduction of stock index futures. The paper is divided into six chapters. The first chapter introduces the background, concepts, literature review, purpose, ideas and structure. The second chapter first introduces the basic concept of stock index futures. Then it describes Shanghai and Shenzhen 300 index and its index futures. Finally it introduces the selected samples of the empirical research. The third chapter first defines the concept of intra-day and inter-day randomness. Then by comparing the intra-day and inter-day randomness, we discuss the impact of the futures on the efficiency of the cash market. From the aspect of intra-day randomness the futures reduce the efficiency of the cash market in the short term. But in the long term this impact is not significant. From the aspect of inter-day randomness this kind of impact is not significant both in the short and long term. Then we discuss the impact of stock index futures on the liquidity of the cash market from the dimension of width and depth respectively in chapter four. We also examine the crowding out effect of the futures market to the cash market in this chapter. From the aspect of market width, the futures reduce the liquidity of the cash market in the short term. But in the long term this impact is not significant. From the aspect of market depth, the crowding out effect exists in the short term and the futures reduce the liquidity of the cash market. But in the long term the futures improve the liquidity of the cash market. In chapter five we use ARCH / GARCH models as a tool to study the impact of the futures on the volatility of the cash market. We also use TARCH models to examine the existence of so-called "leverage effect". Then we discuss the possible ways the futures influence the volatility of the cash market. Finally we examine the existence of volatility's spillover effect. After the introduction of stock index futures, the volatility of the cash market has increased significantly both in the short and long term. The futures'price discovery function accelerates the flow of information in the cash market. The impact of past information on the current market is weakened. And to some extent it fixes the so-called "leverage effect". And there is only one-way spillover effect from the futures market to the cash market. Chapter six is the summary of this paper, which focuses on the conclusions and the innovation. It also points out the deficiencies of this paper and future research directions.This paper reveals the impact of the stock index futures on the cash market to some extent. However, given the situation that the time of the introduction of stock index futures is relatively short and the system is not perfect and investors are not mature enough and market participants are relatively limited and these will be improved in the future, the corresponding conclusions will be amended.