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Predicting Stock Market Crises Using Stock Index Derivatives: Evidence from China

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  • Xiaohan Ma
  • Hui Lin

Abstract

The article offers a comprehensive analysis of the early warning capability of China’s stock index derivatives for the first time. A rolling window logit model is employed to predict stock market crises using data from CSI 300 index futures and SSE 50 ETF options. The findings demonstrate that (1) stock index derivatives play a vital role in predicting stock market crises; (2) short-term forecasts are better predicted by near-month derivatives contracts, whereas for long-term warnings, far-month contracts tend to perform better; and (3) in-the-money calls and out-of-the-money puts are superior to at-the-money options in predicting stock market crises. The insights provided by this article can assist emerging countries in establishing and utilizing derivatives markets more efficiently.

Suggested Citation

  • Xiaohan Ma & Hui Lin, 2024. "Predicting Stock Market Crises Using Stock Index Derivatives: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(3), pages 576-597, February.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:3:p:576-597
    DOI: 10.1080/1540496X.2023.2236284
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