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The spillover effect between CSI 500 index futures market and the spot market

The spillover effect between CSI 500 index futures market and the spot market PurposeFocusing on the spillover effects between the CSI 500 stock index futures market and its underlying spot market during April to September 2015, the purpose of this paper is to explore whether Chinese stock index futures should be responsible for the 2015 stock market crash.Design/methodology/approachUsing both linear and non-linear econometric models, this paper empirically examines the mean spillover and the volatility spillover between the CSI 500 stock index futures market and the underlying spot market.FindingsThe results showed the following: the CSI 500 stock index futures market has significant one-way mean spillover effect on its spot market. The volatility in CSI 500 stock index futures market also has a significant positive spillover effect on its spot stock market, and the mean value of dynamic correlation coefficient between the two market volatility is 0.4848. The spillover effect of the CSI 500 stock index futures market on the underlying spot market is significantly asymmetric, characterized by relatively moderate and slow during the period of the markets rising, yet violent and rapid during the period of the markets falling. The findings suggest that although the stock index futures itself was not the “culprit” of Chinese stock market crash in 2015, its existence indeed accelerated and exacerbated the stock market’s decline under the imperfect trading system.Originality/valueDifferent from the existing literature mainly focusing on CSI 300 stock index futures, this paper empirically examines the impact of the introduction of CSI 500 stock index futures on 2015 Chinese stock market crash for the first time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

The spillover effect between CSI 500 index futures market and the spot market

Fan, Xuejun; Du, De
China Finance Review International , Volume 7 (2): 24 – May 15, 2017
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-1398
DOI
10.1108/CFRI-08-2016-0103
Publisher site
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Abstract

PurposeFocusing on the spillover effects between the CSI 500 stock index futures market and its underlying spot market during April to September 2015, the purpose of this paper is to explore whether Chinese stock index futures should be responsible for the 2015 stock market crash.Design/methodology/approachUsing both linear and non-linear econometric models, this paper empirically examines the mean spillover and the volatility spillover between the CSI 500 stock index futures market and the underlying spot market.FindingsThe results showed the following: the CSI 500 stock index futures market has significant one-way mean spillover effect on its spot market. The volatility in CSI 500 stock index futures market also has a significant positive spillover effect on its spot stock market, and the mean value of dynamic correlation coefficient between the two market volatility is 0.4848. The spillover effect of the CSI 500 stock index futures market on the underlying spot market is significantly asymmetric, characterized by relatively moderate and slow during the period of the markets rising, yet violent and rapid during the period of the markets falling. The findings suggest that although the stock index futures itself was not the “culprit” of Chinese stock market crash in 2015, its existence indeed accelerated and exacerbated the stock market’s decline under the imperfect trading system.Originality/valueDifferent from the existing literature mainly focusing on CSI 300 stock index futures, this paper empirically examines the impact of the introduction of CSI 500 stock index futures on 2015 Chinese stock market crash for the first time.

Journal

China Finance Review International – Emerald Publishing

Published: May 15, 2017

References

  • On the effect of index futures trading on stock market volatility
  • The distribution of exchange rate volatility
  • To what extent did stock index futures contribute to the October 1987 stock market crash?
  • Futures trading, information and spot price volatility: evidence for the FTSE-100 stock index futures contract using GARCH
  • Index futures and positive feedback trading: evidence from major stock exchanges