Volatility spillovers between the stock index futures and its underlying spot market in China

Abstract

In this paper, we have examined the volatility spillovers between the CSI 300 index futures and its underlying spot market, using a bivariate BEKK GARCH model for a sample period of April 16, 2010 to January 18, 2013. This paper provides a unique perspective to incorporate the information of trading and non trading periods into the issue, yielding findings as follows. Firstly, most of the findings offer evidence on the existence of volatility spillovers between the CSI index futures and its spot market in our paper. Secondly, in regard to the direction of the volatility spillovers, there is a unidirectional volatility spillover effect from the CSI spot markets to the index futures market in trading periods, whilst a bidirectional spillover effects in non trading periods. Thirdly, further evidence on the extent and power of the volatility spillovers indicating that the amplitude of volatility spillover in the trading period is larger, showing a more widely ranged volatility. Whilst the volatility spillover in non trading period is more stable, only fluctuating within a narrow range. And the power of volatility spillover effects is slightly stronger in trading periods than that of non trading period.