A Study On CSI300Index Futures Price Discovery Function

China introduced CSI300Index Futures on16th April,2010, escorting mainland financial markets into a new era. Until now, the index futures have been traded for almost2years and they have become one of the most important financial instruments for investment and risk-hedging. Index futures undoubtedly have become a hotspot in financial researches of which the price discovery function of index futures are often discussed in literature. Most of the domestic literature address the issue by empirical studies, mainly focusing on examining whether index futures price lead the cash market index value. However, limited references can be found on testing the leading effects. We also cannot find detailed studies addressing the futures leading effects in different market regimes. This paper probes into the price discovery function of the CSI300index futures by empirical studies.To point out, different market regimes may display different price discovery functions. We will divide our data into trending-up period and trending-down period and study the price discovery function respectively in those two periods. By empirical study, we will be able to find whether index futures price discovery functions differ in the two periods and the reasons to it.This paper is sectioned into7chapters.Chapter1PrefaceIn this chapter we briefly introduce the reasons of choosing this subject and the meaning of our studies. We also state our analysis framework. We will study index futures price discovery function from two perspectives:leading relationship and leading effects. We will also visualize our research framework making it more straightforward.Chapter2Literature ReviewWe write this chapter to review related literature. Foreign scholars have made many theoretical and empirical studies to addressing futures price discovery functions. Because of the relative short history of CSI300Index Future, only limited domestic literatures can be seen on this topic.Chapter3Theoretical AnalysisWe briefly introduced index futures and the characteristics of them. Then we discuss theories regarding the transmission mechanism of index future price function and the price discovery efficiency.Chapter4Test Methods and Statistical ModelsWe test index futures price discovery function by respectively studying leading relationship and leading effects.Chapter5Data and VariableWe process CSI300index futures data and CSI300index data, dividing sample data into trending-up period and trending-down period. We also take the logarithms of our data for better statistical quality.Chapter6Empirical ResultOur empirical studies show there does exist price discovery function in CSI300Index Futures market. Then we test the strength of the price discovery function in different market regimes.Chapter7ConclusionThe final chapter presents conclusions of our studies.Innovations:1.Domestic literature focuses on testing the existence of price discovery function, whereas in this paper we also test the strength of the price discovery function.2.In our studies, we analyze high-frequency index futures data. We divide our data into downward trending and upward trending market to better unveil index futures price discovery function.3.In empirical studies, we consider most of the important factors that can affect futures price discovery function. We mainly use Hasbrouck information share model to analyze the information contribution to futures price discovery function.