Hou, Yang and Nartea, Gilbert (2017): Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash.
Preview |
PDF
MPRA_paper_81995.pdf Download (1MB) | Preview |
Abstract
This paper examines time-varying price discovery of the Chinese stock index futures market during a stock market crash in 2015. We find that the index futures market plays a long-run leading role in terms of its higher static and dynamic generalised information share (GIS) than both the Shanghai and Shenzhen A share markets during the market turbulence. The expected trading volume in each market improves GIS of that market. The importance of trading activities by the majority of investors in increasing market efficiency during a crash is underscored. Government intervention on futures trading impairs price discovery in the futures market.
Item Type: | MPRA Paper |
---|---|
Original Title: | Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash |
English Title: | Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash |
Language: | English |
Keywords: | Generalised Information Share, Price Discovery, GARCH model, Chinese stock market crash, Chinese stock index futures |
Subjects: | G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets |
Item ID: | 81995 |
Depositing User: | Dr Yang Hou |
Date Deposited: | 19 Oct 2017 07:36 |
Last Modified: | 26 Sep 2019 20:17 |
References: | Admati, A., and P. Pfleiderer. “A theory of intraday patterns: Volume and price variability.” Review of Financial Studies, 1 (1988), 1–40. Ates, A., and G. H. K. Wang. “Information transmission in electronic versus open-outcry trading systems: An analysis of U.S. equity index futures markets.” The Journal of Futures Markets, 25 (2005), 679-715. Avino, D.; E. Lazar; S. Varotto. “Time varying price discovery.” Economics Letters, 126 (2015), 18–21. Baillie, R.; G. Booth; Y. Tse; T. Zabotina. “Price discovery and common factor models.” Journal of Financial Markets, 5 (2002), 309–321. Baillie, R.T., and T. Bollerslev. “The message of daily exchange rates.” Journal of Business & Economic Statistics , 7 (1989), 287-305. Bauwens, L., and S. Laurents. “A new class of multivariate skew densities with application to GARCH models.” Journal of Business & Economic Statistics, 23 (2005), 346–354. Bell, A.R.; C. Brooks ; N.Taylor. “Time-varying price discovery in the eighteenth century: empirical evidence from the London and Amsterdam stock markets.” Cliometrica, 10 (2016), 5-30. Bessembinder, P., and P. J. Seguin. “Price volatility, trading volume, and market depth: Evidence from futures markets.” Journal of Financial and Quantitative Analysis, 28 (1993), 21–39. Bohl, M. T.; C. A. Salm,; M. Schuppli. “Price discovery and investor structure in stock index futures.” Journal of Futures Markets, 31 (2011), 282–306. Bollerslev, T. “A conditionally heteroskedastic time series model for speculative prices and rates of return.” Review of Economics and Statistics, 69 (1987),542-547. Bollerslev, T. “Modelling the Coherence in Short Run Nominal Exchange Rates: A Multivariate Generalized ARCH Model.” Review of Economics and Statistics, 72 (1990), 498–505. Booth, G.; J. Lin; T. Martikainen; Y. Tse. “Trading and pricing in upstairs and downstairs stock markets.” Review of Financial Studies, 15 (2002), 1111–1135. Booth, G.; R. So; Y. Tse. “Price discovery in German equity index derivatives market.” Journal of Futures Markets, 19 (1999), 619–643. Capelle-Blancard, G. “Volatility trading in the option market: how does it affect where informed traders trade?” Working Paper, University of Paris (2001). Cappiello, L.; R.F. Engle; K. Sheppard. “Asymmetric dynamics in the correlations of global equity and bond returns.” Journal of Financial Econometrics, 4 (2006), 537-572. Carchano, O., and A. Pardo. “Rolling over stock index futures contracts.” The Journal of Futures Markets, 29 (2009), 684-694. Chakravarty, S.; H. Gulen; S. Mayhew. “Informed trading in stock and option markets.” Journal of Finance, 59 (2004), 1235–1257. Chan, K. “A further analysis of the lead–lag relationship between the cash market and stock index futures market.” Review of Financial Studies, 5 (1992), 123–152. Chan, K.; K. C. Chan; G. A. Karolyi. “Intraday volatility in the stock index and stock index futures markets.” Review of Financial Studies, 4 (1991), 657–684. Chen Y.-L., and Y.-F. Gau. “Tick sizes and relative rates of price discovery in stock, futures, and options markets: Evidence from the Taiwan stock exchange.” The Journal of Futures Markets, 29 (2009), 74-93. Chen, H.Q.; Q. Han; Y.S. Li; K. Wu. “Does index futures trading reduce volatility in the Chinese stock market? A panel data evaluation approach.” Journal of Futures Markets, 33 (2013), 1167–1190. Chen, Y.L., and Y.F. Gau. “News announcements and price discovery in foreign exchange spot and futures markets.” Journal of Banking & Finance, 34 (2010), 1628-1636. Cheng, L.T.W., Fung, J. K.W., and Chan, K. C. (2000). Pricing dynamics of index options and index futures in Hong Kong before and during the Asian financial crisis. Journal of Futures Markets, 20(2), 145-166. Chu, Q. C.; W.G. Hsieh; Y. Tse. “Price discovery on the S&P 500 index markets: An analysis of spot index, index futures and SPDRs.” International Review of Financial Analysis, 8 (1999), 21–34. Covrig, V.; D. K. Ding; D. K.; B. S. Low. “The contribution of a satellite market to price discovery: Evidence from the Singapore exchange.” Journal of Futures Markets, 24 (2004), 981–1004. De Jong, F. “Measures of contributions to price discovery: A comparison.” Journal of Financial Markets, 5 (2002), 323–327. Dickey, D. A., and W.A. Fuller. “Distribution of the estimators of autoregressive time series with a unit root.” Journal of the American Statistical Association, 74 (1979), 427–431. Draper, P., and Fung, J.K.W. (2003). Discretionary government intervention and the mispricing of index futures. Journal of Futures Markets, 23(12), 1159-1189. Engle, R. F. “Dynamic Conditional Correlation - A Simple Class of Multivariate GARCH Models.” Journal of Business and Economic Statistics, 20 (2002), 339–350. Engle, R. F., and C.W.J. Granger. Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55 (1987), 251–276. Engle, R. F., and K. F. Kroner. “Multivariate Simultaneous GARCH.” Econometric Theory, 11 (1995), 122–150. Engle, R., and G. Gonzalez-Rivera. Semiparametric ARCH model. Journal of Business & Economic Statistics, 9 (1991), 345-360. Fernandez, C., and M. Steel. “On Bayesian modelling of fat tails and skewness.” Journal of the American Statistical Association, 93 (1998), 359–371. Fleming, J.; B. Ostdiek; R.E. Whaley. “Trading costs and the relative rates of price discovery in stock, futures, and options markets.” Journal of Futures Markets,16 (1996), 353–387. Garbade, K. D., and W.L. Silber. “Price movements and price discovery in futures and cash markets.” Review of Economics and Statistics, 65 (1983), 289–297. Ghysels, E., and Seon, J. (2005). The Asian financial crisis: The role of derivatives securities trading and foreign investors in Korea. Journal of International Money and Finance, 24, 607-630. Gonzalo, J., and C. Granger. “Estimation of common long-memory components in cointegrated systems.” Journal of Business and Economic Statistics, 13 (1995), 27–35. Grammig, J., and Peter, F.J. “Tell-tale tails: A new approach to estimating unique market information shares.” Journal of Financial and Quantitative Analysis 48 (2013), 459-488. Guo, B., Han, Q., Liu, M., and Ryu, D. (2013). A tale of two index futures: The intraday price discovery and volatility transmission processes between the china financial futures exchange and the singapore exchange. Emerging Markets Finance and Trade, 49, 197–212. Han, Q., and Liang, J.F. (2017). Index futures trading restrictions and spot market quality: Evidence from the recent Chinese stock market crash. Journal of Futures Markets, 37(4), 411-428. Harris, F.; T. McInish; R. Wood. “Security price adjustment across exchanges: In investigation of common factor components for Dow stocks.” Journal of Financial Markets, 5 (2002), 277–308. Harris, L. (1989). The October 1987 S&P 500 stock-futures basis. The Journal of Finance, 44(1), 77-99. Hasbrouck, J. “One security, many markets: Determining the contributions to price discovery.” Journal of Finance, 50 (1995), 1175–1199. Hasbrouck, J. “Intraday price formation in us equity index markets.” Journal of Finance, 58 (2003),2375–2400. Hassan, T., Mohamad, S., Ariff, M., and Nassir, A.M. (2007). Stock index futures prices and the Asian financial crisis. International Review of Finance, 7(3-4), 119-141. Hou, Y., and S. Li. “Price Discovery in Chinese Stock Index Futures Market: New Evidence Based on Intraday Data.” Asia-Pacific Financial Markets, 20 (2013), 49-70. Hou, Y., and S. Li. “Volatility behavior of stock index futures in China: a bivariate GARCH approach.” Studies in Economics and Finance, 32 (2015), 128-154. Johansen, S. “Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models.” Econometrica, 59 (1991), 1551–1580. Karim, B.A., Jais, M., and Karim, S.A.A. (2011). The subprime crisis and stock index futures markets integration. The Journal of Risk Finance, 12 (5), 400 – 408. Kavussanos, M. G.; I.D. Visvikis; P.D. Alexakis. “The lead-lag relationship between cash and stock index futures in a new market.” European Financial Management, 14 (2008), 1007–1025. Khan, S., and Batteau, P. (2011). Should the government directly intervene in stock market during a crisis? The Quarterly Review of Economics and Finance, 51, 350-359. Kim, M.; A.C. Szakmary; T.V. Schwarz “Trading costs and price discovery across stock index futures and cash markets.” Journal of Futures Markets, 19 (1999), 475–498. Kleidon, A. W., and Whaley, R.E. (1992). One market? Stocks, futures, and options during October 1987. The Journal of Finance, 47(3), 851-877. Koutmos, G., and M. Tucker. “Temporal relationships and dynamic interactions between spot and futures stock markets.” The Journal of Futures Markets, 16 (1996), 55–69. Laughlin, G.; A.Aguirre; J. Grundfest. “Information transmission between financial markets in Chicago and New York.” Financial Review, 49 (2014),283–312. Lehmann, B. “Some desiderata for the measurement of price discovery across markets.” Journal of Financial Markets, 5 (2002), 259–276. Lien, D., and K. Shrestha. “A New Information Share Measure.” The Journal of Futures Markets, 29 (2009), 377-395. Lien, D., and K. Shrestha. “Price Discovery in Interrelated Markets.” The Journal of Futures Markets, 34 (2014), 203-219. Lien, D., and Z.J. Wang, “Estimation of Market Information Shares: A Comparison.” The Journal of Futures Markets, (2016), doi:10.1002/fut.21781. Ma, K.; M. Mercer; M. Walker. “Rolling over futures contracts: A note.” The Journal of Futures Markets, 12 (1992), 203-217. Martinez, V., and Y. Tse. “Intraday volatility in the bond, foreign exchange, and stock index futures markets.” Journal of Futures Markets, 28 (2008), 313-334. Nelson, D.B. “Conditional heteroscedasticity in asset returns: A new approach.” Econometrica, 59 (1991), 347-370. Newey, W. K., and K.D. West. “A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix.” Econometrica, 55 (1987), 703–708. Ng, L., and F. Wu. “The trading behaviour of institutions and individuals in Chinese equity markets.” Journal of Banking and Finance, 31 (2007), 2695–2710. Park, S.Y., and S.Y. Jei. “Estimation and hedging effectiveness of time-varying hedge ratio: Flexible bivariate GARCH approaches.” Journal of Futures Markets, 30 (2010), 71-99. Phillips, P. C. B., and P. Perron. “Testing for a unit root in time series regression.” Biometrica, 75 (1988), 335–346. Samuelson, P. “Proof that properly anticipated prices fluctuate randomly.” Industrial Management Review, 6 (1965), 41-49. Stock, J. H., and M.W. Watson. “Testing for common trends.” Journal of the American Statistical Association, 83 (1988), 1097–1107. Stoll, H. R., and R.E. Whaley. “The Dynamics of Stock Index and Stock Index Futures Returns.” Journal of Financial and Quantitative Analysis, 25 (1990), 441-468. Stoll, H.R., and R.E. Whaley. “Expiration-day effects of the all ordinaries share price index futures: empirical evidence and alternative settlement procedures.” Australian Journal of Management, 22 (1997), 139-174. Susmel, R., & R.F. Engle. “Hourly volatility spillovers between international equity markets.” Journal of International Money and Finance ,13 (1994), 3–25. Su, Y., and Yip, Y., and Wong, R.W. (2002). The impact of government intervention on stock returns: Evidence from Hong Kong. International Review of Economics and Finance, 11, 277-297. Taylor, N. “Time-varying price discovery in fragmented markets.” Applied Financial Economics, 21 (2011), 717-734. Tse, Y.K. “Lead-Lag Relationship Between Spot Index and Futures Price of the Nikkei Stock Average.” Journal of Forecasting, 14 (1995), 553-563. Tse, Y. “Price discovery and volatility spillovers in the DJIA index and futures markets.” The Journal of Futures Markets, 19 (1999), 911–930. Tse, Y.; P. Bandyopadhyay; Y.-P. Shen. “Intraday Price Discovery in the DJIA Index Markets.” Journal of Business Finance & Accounting, 33 (2006), 1572–1585. Wahab, M., and M. Lashgari. “Price dynamics and error correction in stock index and stock index futures markets: a cointegration approach.” The Journal of Futures Markets, 13 (1993), 711–742. Wen, X.Q.; Y. Wei; D.S. Huang. “Speculative market efficiency and hedging effectiveness of emerging Chinese index futures market.” Journal of Transnational Management, 16 (2011), 252-269. Xie, S., and Mo, T. (2014). Index futures trading and stock market volatility in China: A difference-in-difference approach. Journal of Futures Markets, 34, 282–297. Xu, F., and D. Wan. “The impacts of institutional and individual investors on the price discovery in stock index futures market: Evidence from China.” Financial Research Letters, 15 (2015), 221-231. Yan, B. and E. Zivot. “A structural analysis of price discovery measures.” The Journal of Financial Markets, 13 (2010), 1 -19. Yang, J.; Z. Yang; Y.G. Zhou. “Intraday price discovery and volatility transmission in stock index and stock index futures markets: Evidence from China.” The Journal of Futures Markets, 32 (2012), 99-121. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/81995 |