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Impacts of Introducing Index Futures on Stock Market Volatilities: New Evidences from China

Author

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  • Yang Gao

    (School of Economics and Management, Beijing University of Technology, China)

  • Bianxia Sun

    (Department of Finance, Southern University of Science and Technology, China)

Abstract

In April 2015, two index futures, IH and IC, respectively underlying big blue chip and small-medium stock indexes, were launched in China. However, because of a market crash, they came under strict control four months later. Using a panel-data evaluation approach, this paper examines how the introduction of IH and IC affect the volatility of their corresponding stocks. Results show that IH significantly reduces spot volatility before (after) a crash, but its function is significantly weakened during a crash. IC always fails to stabilize the spot market and even largely magnifies volatility during (after) a crash. Such different intervention effects on the two spot markets result mainly from the different levels of speculation on them.

Suggested Citation

  • Yang Gao & Bianxia Sun, 2018. "Impacts of Introducing Index Futures on Stock Market Volatilities: New Evidences from China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-23, December.
    • Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500248
    DOI: 10.1142/S0219091518500248
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    References listed on IDEAS

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