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The effect of index futures trading on volatility: Three markets for Chinese stocks

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  • Bohl, Martin T.
  • Diesteldorf, Jeanne
  • Siklos, Pierre L.

Abstract

This paper examines whether the introduction of Chinese stock index futures had an impact on the volatility of the underlying spot market. To this end, we estimate several Generalized Auto-regressive Conditional Heteroscedasticity (GARCH) models and compare our findings for mainland China with Chinese index futures traded in Singapore and Hong Kong. Our results indicate that Chinese index futures decrease spot market volatility in all three spot markets considered. In contrast, we do not obtain the same results for the companion index futures markets in Hong Kong and Singapore. China's stock market is relatively young and largely dominated by private retail investors. Nevertheless, our evidence is favorable to the stabilization hypothesis usually confirmed in mature markets.

Suggested Citation

  • Bohl, Martin T. & Diesteldorf, Jeanne & Siklos, Pierre L., 2015. "The effect of index futures trading on volatility: Three markets for Chinese stocks," China Economic Review, Elsevier, vol. 34(C), pages 207-224.
  • Handle: RePEc:eee:chieco:v:34:y:2015:i:c:p:207-224
    DOI: 10.1016/j.chieco.2014.11.005
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    1. repec:eee:pacfin:v:44:y:2017:i:c:p:13-26 is not listed on IDEAS
    2. repec:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500248 is not listed on IDEAS

    More about this item

    Keywords

    Chinese stock markets; Index futures; Volatility spillovers;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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