Does Option Market Improve Price Discovery In Stock Market?

Price discovery refers to the process by which the market absorbs,processes and reflects new information on prices.The establishment of the derivatives market provides the possibility of trans-temporal value conversion between the two capital forms of commodities and currencies.The special payoff model and high leverage characteristics of derivatives represented by options can theoretically make investors with information more willing to participate in transactions.The external performance of this phenomenon is that the derivatives market tends to respond to information more quickly than the underlying asset market and exhibits price discovery features.So,can the launch of the option market in practice improve the price discovery function of the stock market? How to measure the degree of price discovery contribution in the option market? What are the factors influencing the degree of price discovery in the options market? What is the mechanism behind it? This thesis will try to answer the above questions from the perspective of the SSE 50 ETF options market.Since 2010,the successive listing of CSI 300 index futures and SSE 50 ETF options marks a new stage in China's financial derivatives market construction.Considering the late launch of SSE 50 ETF options and relatively few related studies,at the same time,related options products such as CSI 300 index are being launched one after another,which has clear practical significance for the research on the contribution of 50 ETF option market price discovery.In view of the above reasons,this thesis takes the first stock index ETF option in the Chinese market——50ETF option as an empirical object,aiming to find suitable qualitative methods and quantitative indicators on the basis of previous research results to measure the price of the Chinese option market for the stock market Find the contribution degree and analyze its influencing factors.Based on the idea of mean recovery and natural experiments,this study first examines the mean reversion characteristics of the stock market before and after the option market launch,thereby qualitatively explaining the impact of the establishment of the option market on the stock market price discovery.Then use the vector error correction model(VECM)to model the price expectations of options and the stock market,analyze the lead-lag relationship between the two markets,and construct a quantitative indicator of the market price discovery contribution-the information leading share model(ILS),observing the option market price and discover the time-varying trend of contribution.Finally,on the basis of previous academic achievements,this study analyzes and examines the influencing factors of China's 50 ETF options market's contribution to stock market price discovery.Based on the empirical analysis,this study mainly draws the following conclusions.The average recovery characteristics of the SSE 50 ETF market before the corresponding options are launched are not obvious,but after the corresponding options are launched,they have obvious average recovery properties.The Shenzhen 100 ETF market as the control group has no obvious average recovery characteristics during the entire period,and the launch of the SSE 50 ETF options Helps to enhance the price discovery function of the stock market.The SSE 50 ETF option market leads the underlying asset market for about 8 minutes.China 's option market has the ability to discover the price of the stock market.The average contribution in the price discovery process has reached 69.84%,but there is still a gap compared to the developed countries.At the same time,with the gradual activation of the 50 ETF options market,its information discovery capabilities have also shown an overall upward trend.The empirical results based on regression show that the relative volatility of China 's options and the stock market is an important factor affecting the contribution of price discovery,and the greater the relative volatility of the option market,the weaker the contribution of price discovery.The production indicators and price indicators in the macroeconomic information also have a significant positive correlation with the contribution of price discovery.