Price discovery among SSE 50 Index-based spot,futures, and options markets |
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| Authors: | Kwangwon Ahn Yingyao Bi Sungbin Sohn |
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| Institution: | 1. Graduate School of Future Strategy, Korea Advanced Institute of Science and Technology, Daejeon, Korea;2. Department of Derivatives Investment, China Merchants Securities, Shenzhen, China;3. HSBC Business School, Peking University, Shenzhen, China |
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| Abstract: | This paper studies the contribution of newly launched SSE 50 Index-based options and futures to price discovery. We find that the derivatives markets quickly begin exhibiting price leadership over the corresponding spot market, despite their short history; the information share from both derivatives markets rose from 59.84% in mid-2015 to 84.6% in mid-2017. Using substantial regulation changes during the sample period, we test the trading cost hypothesis. The increases in derivatives transaction costs do not immediately impede their roles in price discovery. Findings suggest that in nascent and immature markets, investors’ trading experience matters more than trading costs. |
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| Keywords: | Chinese derivatives markets price discovery trading cost hypothesis |
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