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CSI 300 Futures and Spot Volatility: Evidence from a TGARCH Model

Article arXiv papers · Author: Marcel Ausloos et al.
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Summary

The document uses the CSI 300 spot index and its index futures market to examine whether futures trading affects spot-price volatility. It argues for a threshold generalized autoregressive conditional heteroskedasticity model as a suitable framework for studying this question. The reported findings associate the introduction of CSI 300 futures trading with a significant reduction in volatility in the corresponding spot market.

The analysis also reports a stationary equilibrium relationship between the spot and futures markets and bidirectional Granger causality. It says spot prices are predicted more accurately using a three- or four-day lag span. These are summarized findings from the described CSI 300 case; the document supplies no sample dates, model diagnostics, effect sizes, or robustness checks. Granger causality indicates predictive relationships in the model and does not by itself establish that futures trading caused the change in spot volatility.

Key ideas

  • The study examines the CSI 300 spot and index futures markets using a TGARCH framework.
  • It reports that futures introduction coincided with a significant reduction in spot-market volatility.
  • The document identifies a stationary equilibrium relationship between the spot and futures series.
  • It reports bidirectional Granger causality and improved spot-price prediction with three- or four-day lags.
  • The summary does not provide evidence details needed to establish causal effects or assess robustness.

Tags

FuturesEquitiesChina marketsVolatilityStatistics
Full text
# Stock index futures trading impact on spot price volatility. The CSI 300 studied with a TGARCH model


# Stock index futures trading impact on spot price volatility. The CSI 300 studied with a TGARCH model









A TGARCH modeling is argued to be the optimal basis for investigating the impact of index futures trading on spot price variability. We discuss the CSI-300 index (China-Shanghai-Shenzhen-300-Stock Index) as a test case. The results prove that the introduction of CSI-300 index futures (CSI-300-IF) trading significantly reduces the volatility in the corresponding spot market. It is also found that there is a stationary equilibrium relationship between the CSI-300 spot and CCSI-300-IF markets. A bidirectional Granger causality is also detected. ''Finally'', it is deduced that spot prices are predicted with greater accuracy over a 3 or 4 lag day time span.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.