The Research On The Impact Of Stock Index Option Listing On Market Volatility

With the rapid development of China’s OTC financial option market and the listing of multiple stock index options in the past two years,more and more studies have been conducted on the impact of stock index options listing.Whether the listing of stock index options has played our expected role has not yet been fully determined.Based on the market situation in China,in the context of the first OTC stock index option listing,we analyze whether the introduction of stock index options has had an impact on market volatility.Although volatility is only one aspect of market quality,it well reflects the risks faced by investors.As one of the important financial tools for risk management,options should play a role in stabilizing market volatility.This article uses theoretical and empirical research to explore the impact of the introduction of Shanghai and Shenzhen 300 stock index options on the volatility level of stock index earnings and the characteristics of volatility.This article selects the closing price data of the Shanghai and Shenzhen 300 Index from November 30,2012 to December 23,2022,and obtains the monthly yield series of the Shanghai and Shenzhen 300 Index.Taking the listing date of the Shanghai and Shenzhen 300 stock index options on December 23,2019 as the cut-off point,the entire sample is divided into sub samples of two stages before and after listing.The important analytical method of this article is to use the counterfactual analysis method to study the impact of the listing of options on the Shanghai and Shenzhen 300 Index on the volatility of stock market returns.Based on the cross dependency between international stock indexes and macroeconomic indicators,the counterfactual volatility of the Shanghai Shenzhen 300 Index is estimated.It is found that the introduction of index options significantly reduces the volatility level of the stock market in the long term,and has a more significant inhibitory effect on volatility in the early stages of option listing.The false experiment further proves the reliability of the counterfactual estimation conclusion.At the same time,the article also studies the impact of stock index option listing on a series of characteristics of volatility,using GARCH model,TGARCH model,and DCC-GARCH model to study the aggregation effect,asymmetric effect,and volatility spillover effect of volatility.Through the empirical analysis of Shanghai and Shenzhen 300,we have reached the conclusion that the listing of stock index options can alleviate the aggregation effect and asymmetric effect of volatility,and increase the volatility spillover effect between the stock market and the futures market.This indicates that options play their functions of price discovery,hedging,and risk management after they are listed.Investors can alleviate extreme investment sentiment in the face of market fluctuations,further amplifying market fluctuations and reducing volatility aggregation compared to avoiding positive feedback trading behavior.At the same time,when faced with adverse news shocks,investors have also developed new strategies to short,reducing the asymmetry of volatility in which negative shocks are greater than positive shocks.The introduction of options has further strengthened and stabilized the significant dynamic correlation between stock index and stock index futures markets.Using the DCC-GARCH model,the dynamic correlation coefficient between the stock index and its corresponding futures has been constructed.After the listing of options,the dynamic correlation coefficient between the stock index and the futures market has been maintained at a relatively high level.This fact is verified by the structural change point test of Bai-Peroton,which indicates that the introduction of options promotes information transmission and linkage between the futures markets.The research results of this article indicate that the listing of the Shanghai and Shenzhen 300 options can reduce the volatility of the stock market in the long run,and enhance the connection and information transmission between multiple markets.The introduction of Shanghai Stock Exchange index options provides investors with risk management tools,improves the price discovery ability of the stock market,reduces positive feedback trading and information asymmetry,and has a positive impact on the market.This enriches the financial instruments for investors to invest in and enables them to better manage their assets;For regulators,reasonable guidance and promotion of options are conducive to the stable development of the market.