The Empirical Research On Volatility Of Index Futures Market

On February8,2006, the state council approved the China securities regulatory commission to establish the "financial futures preparation leading group" to promote the preparatory work of the stock index futures and approved to establish the China Financial Futures Exchange on September8. After four years of preparation, on April16,2010, China Financial Futures Exchange launched the first stock index futures contracts with the subject matter of CSI300Index. The launch of the stock index futures not only provided portfolio tools for investors to manage the System risk, but also provided an opportunity of hedging for them to prevent the investment risk. In addition, investors can use the index futures for arbitrage and get risk-free return. Margin trading system has great leverage, which make it possible for the investors to gain higher return with a lower cost. In terms of risk management, arbitrage research, the stock index futures volatility prediction played an important role, especially with the index futures market become more and more active and the launch of financial derivatives, volatility, as a basic indicator for pricing of financial products, has great significance to research.Based on this, this article focused on three questions:firstly, the asymmetric volatility of index futures’return. Secondly, the research of the relationship between the volatility of index futures’return and the trading volume. Lastly, based on the first two questions, compare the volatility characteristics among China, Hong Kong, South Korea and Japan. The contents of the papers focus on these three aspects. On the basis of previous studies, this article established the Markov regime Switching EGARCH model to discuss the asymmetric volatility of CSI300index futures and the other three kinds of index futures of different countries and areas, and make an explanation of the difference. In addition, this article introduced the volume on the volatility of the MS-EGARCH model to discuss the relationship between the trading volume and the volatility of the return of the index futures. At last, the article made a comparative analysis of volatility between CSI300index futures contract and the other three index futures contracts in the mature market. The conclusion of the article:1. This article established two regime MS-EGARCH model, the estimation results shows that in the high volatility and low volatility regimes, the CSI300index futures and the other three index futures contracts in the mature market have the same volatility characteristics, that is, in both high volatility regime and low volatility regime, bad news, comparing to good news, can exacerbate the volatility of stock index futures market more badly.2. In the article, trading volume is introduced to the volatility of the MS-EGARCH model. The estimation results show that the volatility of the return of CSI300index futures is positively correlated with trading volume. And in the high volatility regime, there is stronger positive correlation.3. This article compared the volatility characteristics in different regimes. We found that in the mature market, the high volatility regimes correspond to the market turbulence, and the low volatility regimes are coincident with the stable market phase. However, the high volatility regimes of the CSI300index futures are coincident with the bull market phase, while the low volatility regimes are coincident with the bear market phase.The innovations in the article:Firstly, this article established two-regime MS-EGARCH model to analyzed the asymmetric volatility of the return of index futures of CSI300index futures contracts and the index futures contracts in Hong Kong, South Korea and Japan, and analyzed that if there is some difference among these markets.Secondly, in this paper, trading volume is introduced to the volatility of the MS-EGARCH model to analyze the relationship between the volatility of the return of the index futures and trading volume. And we can compare the relationship in different regimes.Thirdly, the analysis of the volatility of return of different countries and areas make us understand the difference between the CSI300index futures contract and the futures contracts in the mature markets, and make some suggestions for CSI300index futures market’s development.The inadequacies of this paper: Firstly, this paper analyzed the volatility characteristics of CSI300index futures month continuous contract and other month continuous or season continuous contracts of index futures in the mature market. We didn’t consider other contracts. Actually, the investors can hold multiple contracts. This paper just consider the most actively traded contracts.Secondly, this paper aimed to analyze the asymmetric volatility, the relationship between the volatility and trading volume, and compare the CSI300index futures and other index futures in other mature markets. As the CSI300index futures have only introduced for just two years, the sample size is not large enough, and we didn’t consider the forecast performance of the MS-EGARCH model, that should be the main target of the further reseach.