Abstract
Restrictive measures implemented by governments have a great impact on the price discovery function of stock index futures. This study compares the price discovery function of CSI 500 stock index futures and CSI 500 stock index before and after the implementation of restrictive measures based on the reaction speed to new information, the price ratio of new information and the price contribution of both future market and spot market. It also analyzes the difference between the price discovery function of the future market and that of the spot market and thus proposes policy implications accordingly.Utilizing data of CSI 500 stock index futures in the period of the stock market crash, this study compares the price discovery function before and after the implementation of restrictive measures. By means of the VECM model and common factor analysis, it further investigates the difference in the price contribution of the two markets. Contributing to existing literature on the relationship between the future market and the spot market, this study explores the change in the price contribution of the two markets and therein studies the impact of restrictive measures on the price discovery function. Empirical evidence finds that before the implementation of restrictive measures, the price discovery function worked more efficiently, while, however, after the implementation of restrictive measures, the price discovery function did not work. Hence, stock index futures do assist in the price discovery of the spot market. In some special time periods, however, due to the impact of restrictive policies, the price contribution of the spot market exceeded that of the future market, implying that the price discovery function of the CSI 500 stock index future market is unstable.
Highlights
IntroductionAfter reaching the highest point in the history at 5,178, the Shanghai Stock Exchange Composite Index fell by 2,328 points within the following two months
June 12, 2015 is a turning point in the Chinese stock market
ISSN 1923-4023 E-ISSN 1923-403 http://ijfr.sciedupress.com. Based on such a situation, on July 3 and September 7, restrictive measures on stock index futures were implemented in the form of commission fees, a security deposit and transaction volume, which reduced the amount of transaction immediately
Summary
After reaching the highest point in the history at 5,178, the Shanghai Stock Exchange Composite Index fell by 2,328 points within the following two months This stock market crash caused enormous losses for investors, and struck China’s real economy as it ceased IPO and distorted financing channels, which, in turn, exacerbated the slowing down of China’s economic growth. This indicates that CSI 500 futures could be manipulated in the short term due to the small scale of enterprises comprising CSI 500 futures, which is, in turn, likely to cause a stock market crash Based on such a situation, on July 3 and September 7, restrictive measures on stock index futures were implemented in the form of commission fees, a security deposit and transaction volume, which reduced the amount of transaction immediately.
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