Abstract
This paper studies the effectiveness of the CSI 300 index futures markets from the perspective of information efficiency and function efficiency and examines the nonlinear dynamic characteristics of efficiency by using nonparametric methods. For information effectiveness, we find that the price of stock index futures follows a random walk. For function effectiveness, the results show that (1) the average optimal hedge ratio is 0.8702, and the average effective level reaches 86.11%. (2) The error correction mechanism is only supported by stock index futures. The error correction effect only exists in the extreme regime (only 6% of the total observed value). Most of the time (94%), both prices are subject to random walk process. There is no arbitrage trade between futures and spots. (3) Both linear and nonlinear leadership are observed in stock index futures. The nonlinear leadership is mainly reflected in stock index futures. Both leadership types are influenced by institutional changes and significant financial events and evolve over time, which indicates that stock index futures cannot play the dominant role in price discovery. In sum, we conclude that the CSI 300 stock index futures market is effective, despite the flaws in price discovery.
Highlights
The introduction of CSI 300 index futures—the short selling mechanism in China’s security markets—in April 2010 was hailed as one of the landmark developments in China’s financial markets
This paper studies the effectiveness of the CSI 300 index futures markets from the perspective of information efficiency and function efficiency and examines the nonlinear dynamic characteristics of efficiency by using nonparametric methods
We first establish an empirical framework to test the efficiency of the CSI 300 index futures markets from the perspective of information efficiency and function efficiency, and examine the nonlinear dynamic characteristics of the efficiency of the CSI 300 index futures market by using nonparametric methods
Summary
The introduction of CSI 300 index futures—the short selling mechanism in China’s security markets—in April 2010 was hailed as one of the landmark developments in China’s financial markets. It is worth noting that the trading volume of CSI 300 index futures reached 58,547 hands and 436,000 hands on the first day of listing and as of June 1, respectively. The latter means that the nominal turnovers of the CSI 300 stock index futures have jumped to second place in the global stock index futures, second only to the S&P 500 mini stock index futures contract. The effectiveness of stock index futures, represented by inherent economic functions, such as stabilising the stock market, has been widely questioned. Is the CSI 300 stock index futures market effective? How should we treat the development of CSI 300 stock index futures objectively and rationally? We seek to investigate the authentic effectiveness of CSI 300 stock index futures market Is the CSI 300 stock index futures market effective? How should we treat the development of CSI 300 stock index futures objectively and rationally? To answer these questions, we seek to investigate the authentic effectiveness of CSI 300 stock index futures market
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