The rolling causal structure between the Chinese stock index and futures

This paper examines the causal structure between daily closing price series of the Chinese stock index and futures from April 16, 2010, the launch date of the futures, to November 14, 2014, through a rolling approach that takes into account window sizes of a half, one, one and a half, and two years. Except for several subperiods associated with the half- and one-year window, the two series are tied together through cointegration and adjust equally toward the long-run relationship. Considering different forecasting lengths, the out-of-sample Granger causality test for each window generally reveals that no series gains forecastability from another. These results shed light on the evolving causal structure between the two series, which is determined to be stable. The futures market, however, has not been fully developed to serve as a price discovery source. Increasing openness of investment channels and policy incentives to attract well-informed traders may stimulate futures market development.