Bid-ask Spread And Its Components Of Chinese Stock Index Futures Market

Financial Market Microstructure is finance areas which study price formation and price discovery, market structure and design, information disclosure. The bid-ask spread is an important part of financial microstructure theory. In order to search for the characteristics of China’s stock index futures market microstructure, this paper first described the main contents of financial market microstructure theories, provided an overview of recent developments in this field, and then use high-frequency data from Chinese Stock Index Futures Market to conduct an empirical study of bid-ask spread pattern and the associated determinants that affect bid-ask spread, employ a model of components of bid-ask spread for order-driven market and decomposes the bid-ask spread of Chinese stock index futures market into adverse selection cost and order processing cost, investigates the relationship between the components of bid-ask spread and order size, explores the intraday pattern of adverse selection cost and information-based trading.Results obtained show that the adverse selection cost increases with trade size, the order processing in generally not characterized with the scales of economics.moreover,we find that the adverse selection component of the bid-ask spread exhibits a U Sharpe and a L Sharpe intra-day pattern. Which implies that the relatively heavy trading just after open is dominated by information-based trading. These findings suggest important policy implicates for the development of stock index futures market.