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Price Discovery Function of Index Futures in China: Evidence from Daily Closing Prices

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  • Shiqing Xie
  • Jiajun Huang

Abstract

Price discovery is one of the main functions of stock index futures. Using the daily closing prices of the CSI 300 index and its index futures from April 2010 to April 2012, this paper applies a vector error correction model (VECM) and an impulse response function to conduct an empirical analysis on the price discovery function of index futures in China. This paper has the following four findings: (1) a solid cointegration relationship between the CSI 300 index and its index futures exists in the long run; (2) when prices deviate from the long-term equilibrium, the stock index reverses weakly, while the reversal of index futures is much stronger; (3) the daily lead-lag relationship between the prices of the CSI 300 index and its index futures contracts is not significant in the short run; (4) shocks from the spot market have a lasting impact upon the futures market, but not vice versa, due to the limited short-term adjustment ability of the spot market.

Suggested Citation

  • Shiqing Xie & Jiajun Huang, 2013. "Price Discovery Function of Index Futures in China: Evidence from Daily Closing Prices," Economic and Political Studies, Taylor & Francis Journals, vol. 1(2), pages 40-54, July.
    • Handle: RePEc:taf:repsxx:v:1:y:2013:i:2:p:40-54
    DOI: 10.1080/20954816.2013.11673859
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    Cited by:

    1. Jiajia Meng & Xuedong Wang & Jialu Yang, 2023. "Supply Chain Finance and Industrial Efficiency: Evidence From ICT Industry," SAGE Open, , vol. 13(4), pages 21582440231, December.

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