Home >> Working Paper
Stabilize or Destabilize the Stock Market by Introducing Stock Index Futures: Evidence from High Frequency Data
Read        DownLoad
TitleStabilize or Destabilize the Stock Market by Introducing Stock Index Futures: Evidence from High Frequency Data  
AuthorGao Jinyao and Hu Jinyan  
OrganizationShandong University; 
Key WordsStock Index Futures; Arbitrage; Hedging; Market Manipulation; Sentiment Contagion 
AbstractThe classification and identification of trade motivations behind the markets is the key to understand the spot-future market relations. With high frequency data, our paper identifies and tests four kinds of trading strategies that may lead to spot-future market interactions, namely arbitrage, hedging, market manipulation and sentiment contagion. After a division of the full sample according to the climax of CSI 300 index since the introduction of stock index futures, we find a one-way arbitrage during the normal trading period, that is, to buy in the spot and sell in the futures. We also find a hedging effect of the stock index futures which can alleviate the selling shocks to the spot market, but the selling pressure may be transmitted to the spot market again as soon as the futures are sold at a discount. The amounts of financing and security lending don’t match the demand for funds and assets of arbitrage trading, but show a substitution effect to the stock index futures. During the stock market turmoil, we find no significant relations between the spot and future market except for the stock replacement strategy which replaces the stock positions with undervalued stock index futures. What’s more, we find no evidence supporting the hypothesis of cross-market manipulation and sentiment contagion. 
Serial NumberWP1176 
  • Institute of Economics, Chinese Academy of Social Sciences
  • Copyright Economic Research Journal
  • The uploaded articles by this website express the authors’ views, not necessarily the views of this website.
  • Perennial Legal Counsel: Lu Kang (Chong Guang Law Office)
  • ISSN 0577-9154 CN 11-1081/F Postal Distribution Code 2-25l (Domestic) M16 (Overseas)
  • ICP 10211437 (Beijng)
  • No.2,Yuetan Bei Xiaojie, Xicheng District, Beijing 100836, P. R. China
  • Phone/Fax: (+8610) 68034153