Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective

Xiong, Xiong; Ding, Nan; Yang, Yang; Zhang, Yongjie

doi:10.1371/journal.pone.0141605

Cited by 6 publications

(7 citation statements)

References 19 publications

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“…Xu et al [41] constructed an artificial spot-futures market model with crossmarket traders and successfully reproduced the typical characteristics of Chinese stock market and the CSI 300 index futures market. After that, Xiong et al [42]; Liang et al [43], and Xiong et al [44] did further research based on the model of Xu et al [41]. Xiong et al [42] focused on the price limits level in futures market and found that enhancing or removing price limits could both hurt market stability.…”

Section: Literature Reviewmentioning

confidence: 99%

Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method

Zhou

2021

Discrete Dynamics in Nature and Society

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There have been heated debates about the role of stock index futures in the financial market, especially during the crash periods. In this paper, a multiagent spot-futures market model is developed to analyze the micromechanism of shock transfer across spot and futures markets. We assume that there are two stocks and one stock index futures contract in the spot-futures market. Agents are heterogeneous, including fundamentalists, chartists, noise traders, and arbitragers. The spot market and the futures market are linked by arbitragers. The simulation results show that our spot-futures market model can reproduce various important stylized facts, including the price co-movement between stock index prices and index futures prices and the fat-tailed distribution of the returns of risky assets and the basis. Further analysis shows that when we introduce an exogenous fundamental shock to one of the stocks, the backwardation phenomenon appears in the futures market and the shock is widespread across the whole market by means of index futures. Moreover, the backwardation gradually disappears when the number of arbitragers increases. Besides, when there are few arbitragers or when there are sufficient arbitragers, shocks cannot be transferred to other stocks via the futures market, while an intermediate level of arbitrage will amplify the shock transfer and hurt market stability. These findings underscore that arbitragers play an important role in spot-futures market interaction and shock transfer, and adequate arbitrage trading during crises may help eliminate the positive basis and halt the further spread of the crises.

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Section: Literature Reviewmentioning

confidence: 99%

Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method

Zhou

2021

Discrete Dynamics in Nature and Society

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“…Zhang, Ping, Zhu, Li, and Xiong () use an artificial stock market model to measure the effect of circuit breakers, whereas Xiong, Nan, Yang, and Yongjie () employ an agent‐based model to do the same. Lin () proposes a theoretical framework for capturing tail behaviour of volatility under price limits and demonstrates its effectiveness in measuring dynamic spillover effects.…”

Section: Future Research Avenuesmentioning

confidence: 99%

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

Sifat

Mohamad

2018

Int. J Fin Econ

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Circuit breaker, an automated regulatory instrument employed to deter panic, temper volatility, and prevent crashes, is controversial in financial markets. Proponents claim it provides a propitious time out when price levels are stressed and persuades traders to make rational trading decisions. Opponents demur its potency, dubbing it a barrier to laissez‐faire price discovery process. Since conceptualization in 1970s and practice from 1980s, researchers focused mostly on its ability to allay panic, interference in trading, volatility transmission, prospect of self‐fulfilling prophecy through gravitational pull towards itself, and delayed dissemination of information. Though financial economists are forked on circuit breakers' usefulness, they are a clear favourite among regulators, who downplay the reliability of anti‐circuit breaker findings citing, inter alia, suspect methodology, and lack of statistical power. In the backdrop of 2007–2008 Crisis and 2010 Flash Crash, the drumbeats for more regulatory intervention in markets grew louder. Hence, it is unlikely that intervening mechanism such as circuit breakers will ebb. But are circuit breakers worth it? This paper synthesizes three decades of theoretical and empirical works, underlines the limitations, issues, and methodological shortcomings undermining findings, attempts to explain regulatory rationale, and provides direction for future research in an increasingly complex market climate.

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“…Second, the equity returns of firms operating in oil exploration, refinery, and marketing are co-integrated with the one-month and four-month oil futures prices [ 27 , 28 ]. Third, as concluded by [ 21 , 29 ], the variability of the futures prices is a judgment of the efficiency of hedging activities of firms engaged in hedging. However, considering the fact that the majority of previous studies have preferred using the spot price [ 30 – 32 ], we use both the spot and the futures prices data, similar to [ 33 ].…”

Section: Data Descriptionmentioning

confidence: 99%

The role of global economic policy uncertainty in long-run volatilities and correlations of U.S. industry-level stock returns and crude oil

Fang

Sun

2018

PLoS ONE

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We investigate how Global Economic Policy Uncertainty (GEPU) drives the long-run components of volatilities and correlations in crude oil and U.S. industry-level stock markets. Using the modified generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) and dynamic conditional correlation mixed data sampling (DCC-MIDAS) specifications, we find that GEPU is positively related to the long-run volatility of Financials and Consumer Discretionary industries; however, it is negatively related to Information Technology, Materials, Telecommunication Services and Energy. Unlike the mixed role of GEPU in the long-run volatilities, the long-run correlations are all positively related to GEPU across the industries. Additionally, the rankings of the correlations of Energy and Materials are time-invariant and classified as high, with the little exception of the latter. The Consumer Staples industry is time-invariant in the low-ranking group. Our results are helpful to policy makers and investors with long-term concerns.

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Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective

Cited by 6 publications

References 19 publications

Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method

Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method

Circuit breakers as market stability levers: A survey of research, praxis, and challenges

The role of global economic policy uncertainty in long-run volatilities and correlations of U.S. industry-level stock returns and crude oil

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