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The pricing mechanism between ETF option and spot markets in China

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  • Da Dong
  • Qingfu Liu
  • Pingping Tao
  • Zhiliang Ying

Abstract

This paper investigates the price discovery and volatility spillover effects between the exchange‐traded fund (ETF) option and spot markets in China. Employing a sample of China Securities Index (CSI) 300 ETF options and spots, we find that the CSI 300 ETF options interact with the spot markets, with the CSI 300 ETF options contributing more than the spots in terms of pricing efficiency, especially on the Shanghai Stock Exchange (SSE). We further find that the option markets on the SSE can dominate the option markets on the Shenzhen Stock Exchange, revealing investors' trading behaviors across different markets.

Suggested Citation

  • Da Dong & Qingfu Liu & Pingping Tao & Zhiliang Ying, 2021. "The pricing mechanism between ETF option and spot markets in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(8), pages 1286-1300, August.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:8:p:1286-1300
    DOI: 10.1002/fut.22205
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