Impacts of Introducing Index Futures on Stock Market Volatilities: New Evidences from China

Yang Gao and Bianxia Sun
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Yang Gao: School of Economics and Management, Beijing University of Technology, China
Bianxia Sun: Department of Finance, Southern University of Science and Technology, China

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2018, vol. 21, issue 04, 1-23

Abstract: In April 2015, two index futures, IH and IC, respectively underlying big blue chip and small-medium stock indexes, were launched in China. However, because of a market crash, they came under strict control four months later. Using a panel-data evaluation approach, this paper examines how the introduction of IH and IC affect the volatility of their corresponding stocks. Results show that IH significantly reduces spot volatility before (after) a crash, but its function is significantly weakened during a crash. IC always fails to stabilize the spot market and even largely magnifies volatility during (after) a crash. Such different intervention effects on the two spot markets result mainly from the different levels of speculation on them.

Keywords: Chinese stock market crash in 2015; panel data evaluation approach; stock index futures; stock market volatility (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S0219091518500248

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