Can Stock Index Future Really Stabilize Stock Market? The Evidence from Chinese Stock Market

Abstract

The financial theory shows that future markets can stimulate the information production, and therefore provide more information for uninformed traders, hence to stabilize the stock market. This paper investigates whether the Chinese CSI300 index futures can stabilize the Chinese stock market. By using the econometric approach of Bai (2003) and Stock and Watson (2011) to estimate the latent global factor from panel data of international stock markets, this paper controls the economic fundamentals and employs the equal variance test of Yang et al. (2014) to compare the volatility of the CSI300 stock index before and after the appearance of CSI300 index futures. We find that CSI300 index futures can help to stabilize the Chinese stock market significantly.

Research on Prediction and Early Warning of A-Share Market Volatility Based on HAR-Type Models

“…Similarly, Guo and Ma [28] , Ye, et al [29] , Ma, et al [30] and Zeng, et al [31] further extended this part of the research to precious metals, ETFs, and G7 stocks market, as well as various representative financial markets around the world, and have demonstrated the necessity of considering the impact of jump components in high-frequency forecasting. However, another part of scholars believe that in the volatility prediction of related investment targets, the high-frequency jump component has only a weak predictive ability, that is, its contribution is relatively limited [32][33][34] . Especially for the Chinese stock market, this phenomenon may become more obvious [35][36][37] .…”