Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash

Hou, Yang and Nartea, Gilbert (2017): Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash.

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
• 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

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