The effect of index futures trading on volatility: Three markets for Chinese stocks |
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| Institution: | 1. Department of Economics, Westfälische-Wilhelms University of Münster, Am Stadtgraben 9, 48143 Münster, Germany;2. Department of Economics, Westfälische-Wilhlems University of Münster, Germany;3. Department of Economics, Wilfrid Laurier University, Waterloo, Canada;1. Department of Social Work, University of Gothenburg, P.O. Box 720, SE 405 30 Göteborg, Sweden;2. Institute for the Study of Labor (IZA), Bonn, Germany;3. School of Economics and Business, Beijing Normal University, 19 Xin Jie KouWai Da Jie, Beijing, PR China;4. Rostov State Economic University, B. Sadovaya str. 69, 344007 Rostov-on-Don, Russia;5. Institute of Social Studies, National Development and Reform Commission, B1303, Muxidibeili Jia 11, Xicheng District, Beijing 100038, China;1. Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, 211 West Huaihai Road, Shanghai, PR China;2. Chinese University of Hong Kong, 12 Chak Cheung St., Shatin, N.T., Hong Kong;3. Dept. of Int''l Business, St. John''s University, 499, Sec. 4, Tam King Rd. Tamsui, New Taipei City, Taiwan;1. Department of Business Administration, University of Bremen, Germany;2. Department of Management and Engineering, Linköping University, Sweden;1. Vienna University of Economics and Business, Department of Economics, Institute for International Economics, Welthandelsplatz 1, 1020 Vienna, Austria;2. University of Portsmouth, Economics and Finance Subject Group, Portsmouth Business School, Portland Street, Richmond Building, Portsmouth PO1 3DE, United Kingdom;3. Technological Educational Institute of Crete, Department of Accounting and Finance, 71004 Crete, Greece;4. Hellenic Open University, School of Social Sciences, Greece |
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| Abstract: | This paper examines whether the introduction of Chinese stock index futures had an impact on the volatility of the underlying spot market. To this end, we estimate several Generalized Auto-regressive Conditional Heteroscedasticity (GARCH) models and compare our findings for mainland China with Chinese index futures traded in Singapore and Hong Kong. Our results indicate that Chinese index futures decrease spot market volatility in all three spot markets considered. In contrast, we do not obtain the same results for the companion index futures markets in Hong Kong and Singapore. China's stock market is relatively young and largely dominated by private retail investors. Nevertheless, our evidence is favorable to the stabilization hypothesis usually confirmed in mature markets. |
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