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The impact of the CSI 300 stock index futures: Positive feedback trading and autocorrelation of stock returns

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  • Hou, Yang
  • Li, Steven

Abstract

This study examines the impact of the CSI 300 index futures on the underlying spot market in terms of feedback trading model. A univariate AR-GJR-GARCH-M model and a bivariate VECM–GARCH-M model are employed for the analysis. Our research reveals that the CSI 300 stock index futures market intensifies positive feedback trading in the underlying spot market which is detrimental to the informational efficiency. Furthermore, the CSI 300 stock index futures market attracts positive feedback trading in itself and this may destabilize asset prices of the underlying spot index through the index arbitrage process.

Suggested Citation

  • Hou, Yang & Li, Steven, 2014. "The impact of the CSI 300 stock index futures: Positive feedback trading and autocorrelation of stock returns," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 319-337.
    • Handle: RePEc:eee:reveco:v:33:y:2014:i:c:p:319-337
    DOI: 10.1016/j.iref.2014.03.001
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    More about this item

    Keywords

    Positive feedback trading; AR-GJR-GARCH-M model; VECM–GARCH-M model; CSI 300 stock index futures; Returns autocorrelation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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