Analysis Of Stock Index Future On Market Volatility And Liquidity

On16th April2010, the CSI300index future contracts listed and traded in Shanghai and Shenzhen Stock Exchanges is formally listed in China’s Financial Futures Exchange, which has filled in the blanks of the" two-way trading" in China’s stock markets. However, up till now, what effects have the introduction of stock index future produced on the volatility and liquidity of the stock spot markets’.’This is still a question. In this paper, we start with the introduction of liquidity and volatility indicators as well as its history. Further, in order to have a better understanding of the influence of stock index futures on the stock market, we still elaborate the fluctuations of the stock index future markets that is widely recognized. Then we conduct the theoretical and empirical analysis by adopting the method of the3SLS model. The results show that the introduction of the CSI300stock index futures in Shanghai and Shenzhen stock markets has significant positive impact on the volatility of the underlying CSI300stocks and significant negative impact on the liquidity of the underlying stocks in the beginning.Then in the basing period the CSI300index futures have no significant impact on both volatility and liquidity of the underlying stock market. In the end, we have some proper suggestions on the development of Chinese stock index future, which are based on the conclusions of theoretical and empirical analysis and Chinese market situation.