The Impact of the Stock Index Futures “Regulation” Policy and “Deregulation” Policies on the Spot Market Volatility

Abstract

In 2015, the China Financial Futures Exchange implemented a strong regulation policy on the trading of stock index futures. After which following the past few years, it carried out a few more policy adjustments to restore the capacity of index futures trading. This paper implies the ARMA-GARCH model to study the impact of policy adjustments on spot market volatility. The results show that: (1)The strong regulation policy during the stock market crash reduced the spot volatility; (2) The subsequent deregulation policy adjustments activated the futures' function, which further reduced the spot market volatility.