Abstract
We investigate the impact of stock index futures on the information environment of listed firms through the launch of Shanghai-Shenzhen 300 stock index futures (CSI 300 index) as natural experiment on April 16, 2010. We employ difference in difference analysis and apply the PIN indicator (the probability of informed trading) to measure information asymmetry. We found that the CSI 300 index significantly reduce the information asymmetry of CSI 300 companies. For the companies with higher market capitalization, higher turnover rate and higher institutional investor’s rate, the impact of stock index future on the corporate information environment is more significant. The results of this paper provide new evidence for evaluating the impacts of Chinese stock index futures.
Highlights
Morton Miller, winner of the Nobel Prize in economics, believes that the relationship between financial derivatives such as stock index futures and the spot market is “two doors of one house." Through the replication of spot transactions, stock index futures provide investors with a more convenient access to the world of risk
We use the launch of CSI 300 stock index futures as natural experiment and construct difference in difference framework (DID) to analysis the influence of stock index future on the information asymmetry of listed companies and information environment
We find that the launch of CSI 300 stock index futures significantly reduces the information asymmetry of CSI 300 stocks
Summary
Morton Miller, winner of the Nobel Prize in economics, believes that the relationship between financial derivatives such as stock index futures and the spot market is “two doors of one house." Through the replication of spot transactions, stock index futures provide investors with a more convenient access to the world of risk. China launched CSI300 stock index futures on April 16, 2010, initiating the short selling mechanism in China's securities market. The price variation of stock index futures is earlier than the price variation in the stock index. Investors' expectations on bad news can be reflected in the variations in futures prices, which affects the changes in stock indexes. The transaction costs of the stock index futures market is lower and the response of stock index future market to new information is faster than the spot market. All of these promote the information disclosure, and more reasonable market price
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