Can SSE50ETF Option Influence The Volatility Of The Stock Market In China

On Februrary 9th,2015,SSE50 ETF option was introduced by Shanghai Stock Exchange.The SSE50 was the first stock index option product traded in exchanges in China,which showed the approval from the regulatory agencies.Meanwhile,all investors have had a new risk management tool ever since the introduction of the SSE50 ETF option.This article focuses on the effect after the SSE50 ETF option came out,and did a study on the medium and long term effect about the volatility of the stock market in China.The volatility of stock market has been a concerned problem in modern investing studies.The range of volatility reflects the risk level of the market and the emotions of investors.A large number of researchers have carried out the researches about the relation between stock index options and the volatility of stock market,and the conclusions are not uniform.Some researchers believe that stock index options reduce the volatility of stock market,some researchers hold the opposite opinions,and some other researchers regard that there's few relation between the two.In order to measure how the SSE50 ETF option could affect the volatility of stock market,this article takes the official start time of the SSE50 option as the dividing point,and chooses the SSE50 index,the CBI500 index,the S&P500 index as samples.First,statistics are used to describe the sequencing samples.Second,ADF test and cointegration test are applied to the sequences.On the basis of sequence stationary,a GARCH model is constructed and a dummy variable is introduced to represent the event that the SSE50ETF option came out.Third,the article tests the volatility of the sequences.Forth,on assuming constant unconditional variance,a Chow test is conducted to see whether there is a structural change in the pre and post SSE50 ETF option introduction.Fifth,a TARCH model is constructed to see if the asymmetric effect of the stock market weakens after the introduction of the SSE50 ETF option.In order to eliminate possible external influences,the CBI500 index and the S&P500 index are trated as important parameters.Empirical results show that three years after the introduction of the SSE50 ETF option,the volatility range of the SSE50 index stays the same,there seems to be no asymmetric effect of the stock market,and the speed of information transfer is faster.Finally,some suggestions are raised to the regulatory agencies.