China's Stock Index Futures Margin Setting Mechanism To Explore

Margin Setting Mechanism plays very important role in regular operation of futures market. It is a fundamental method to prevent market fluctuation risk and to avoid default behavior of futures trade. However, margin setting is not very easy and margin level will affect the efficiency of futures market operation. If margin level is set too high, trade default risk will be reduced a lot, but traders’transaction cost will be too high and market liquidity will decrease. On the contrary, if margin level is set too low, trade may be very active, but default risk will be increased greatly.Currently, there already exist many optimal margin level setting methods in theoretical and practical areas and different methods will produce different optimal margin levels and market effects. This paper chooses CSI300Index as our research objects and analyzes the efficiency of EWMA-VAR, GARCH-VAR, Extreme Value Theory and Kernel-Density Estimation in the process of setting optimal margin level for CSI300Index based on three periods (total period, period when index rises, period when index falls). Meanwhile, we use efficient margin setting methods to calculate the optimal margin level for CSI300Index. In addition, index futures volatility is the key factor affecting margin level. This paper applies futures fluctuation model and robust test to analyze trading data of CSI300Index Futures and explores the influence factors of index futures volatility and the direction and significance of factors’ influence.Our research shows:EVT and Kernel-Density Estimation efficiently estimate the optimal margin level of CSI300Index during three periods, but EWMA-VAR and GARCH-VAR are not efficient during total period and when index rises. Only when index falls, EWMA-VAR and GARCH-VAR show efficiency. Secondly, current margin level for CSI300Index Futures is from12%to18%while CSI300Index’s optimal margin level calculated by EVT and Kernel-Density Estimation is from4.5%to6.5%. This means that current margin level is much higher than optimal margin level and we discus intrinsic reasons based on reality. Thirdly, positive return and insider trading volume of CSI300Index Futures Contract are significantly and positively associated with CSI300Index Futures Contract’s volatility while negative return and open interest are significantly and negatively linked to volatility. Besides, trading volume imposes insignificant effect on volatility.