China's Stock Index Futures Market And Spot Market An Empirical Analysis Of The Influence Each Other

Since it was firstly launched in the US in the eighties 20thcentury, stock indexfuture has become an efficient utensil of derivatives for the management of systematicrisks in the stock market, and quickly been adopted worldwide. Many developing anddeveloped countries have launched their own stock index futures. In nowadays, stockindex future has become an indispensable part of the financial market. While in China,the first stock index future (HS300) was launched on 16thApril 2010, marking a newstage of the development of Chinese securities market. During the passed two yearssince the introduction of HS300 index future, the underlying HS300 index hasexperienced a high volatility, which is maintained by some to be caused by theintroduction of the index future. On the contrary, others maintain that it is the stockindex that causes the high volatility of the index future. In this paper, a discussion onrelationship between the stock index future and the underlying index, particularly theimpact on each other’s volatility, will be carried out. By building a GARCH model,we study the sample of data before and after the introduction of stock index future,and make a comparison. Through the observation of the structural change of theARMA model, we analyze the impact of stock index future on the underlying index.In the meanwhile, co-integration test and granger test are also carried out to study thelong-term relation of equilibrium. Furthermore, VAR model, VEC model and pulseresponse analysis are also performed to test the relationship of mutual interaction. Ourempirical study shows that the introduction of stock index future enhances thevolatility of its underlying stock index. However, such effect is not so significant. Inaddition, our result also implies that HS300 stock index future and the index are inmutual effect relation, but the influence of 300 stock index futures on HS300 stockindex is more.