The Effect Of Csi 300 Index Futures Trading On The Chinese Stock Market

989 words - 4 pages

In this paper, we discuss the effect of CSI 300 index futures trading on the Chinese stock market. Specifically, we focus on the two topics (1) price volatility and efficiency of market, and (2) the arbitrage trading
5.1 On market volatility and efficiency
I introduce the research result on the market volatility and efficiency in the Korean market. Two approaches have been used to analyze the effect of index futures trading on stock market volatility and market efficiency. One approach is to compare the change on stock price volatility and efficiency before and after futures trading is introduced. The other approach is to compare stock price volatility differences and efficient trading between KOSPI 200 stocks and non-KOSPI 200 stocks.
The empirical results show that (1) the introduction of futures trading is related with an increase in spot price volatility for both KOSPI 200 stocks and non-KOSPI 200 stocks; (2) the addition of options trading to the futures trading is related with even greater spot price volatility for both groups of stocks; (3) the publication of the KOSPI 200 company list brings in a significant increase in the spot price volatility of non-KOSPI 200 stocks, but almost no change in the spot price volatility for KOSPI 200 stocks; and (4) the futures trading would generate more trading in non-KOSPI 200 stocks, leading to a relatively large increase in both spot price volatility and trading efficiency of non-KOSPI 200 stocks, compared to KOSPI 200 stocks.
The empirical result on volatility and market efficiency indicates that the introduction of futures market trading in China is expected to increase not only the liquidity of market but also stock market volatility and hence and the efficiency of the underlying stock market. Considering that market participants have less information on non-CSI 300 stocks than CSI 300 stocks, the futures market information would become valuable not only to investors on CSI 300 stocks but also to those on less recognized CSI 300 stocks. So, the futures trading would produce more trading in non-CSI 300 stocks, leading to an increase in both spot price volatility and trading efficiency of non-CSI 300 stocks.
Also, the market regulations and restrictions would contribute to the stabilization of the underlying stock market by reducing spot price volatility of the underlying stocks, especially when the markets are extremely volatile as financial crisis does. At the same time, however, these market restrictions seem to disturb the efficient transfer of futures market information into the pricing of the underlying stocks. Since there are much market frictions such as price limit and restrictions on foreign ownership in the Chinese securities markets, the relation between market frictions and spot price volatility would be more evident. Thus, governments and authorities planning to promote futures trading would need to pay careful attention to the market restrictions they bring in for the...

Find Another Essay On The Effect of CSI 300 Index Futures Trading on the Chinese Stock Market

The Internet’s Impact on Stock Trading

2550 words - 10 pages "The Internet’s Impact on Stock Trading" Before the internet, stock trading was done exclusively through brokers. Now that computers and technology have apparent strongholds in the realm of stock trading, more people have access to the market. This essay shares some experiences that online stock trading services and day traders have had due to the radical movement of online trading. The essay commences with a fictional anecdote that

The Effect of High Frequency Trading Systems on Financial Markets

1394 words - 6 pages .pdf. Last accessed 27/11/2011. Linton, O. (2011). What has happened to UK Equity Market Quality in the last decade? An analysis of the daily data. Available: Last accessed 27/11/2011. Zhang, F. (2010). The Effect of High-Frequency Trading on Stock Volatility and Price Discovery. Available: http

Using futures contracts to take advantage of the January Effect.

3018 words - 12 pages consists in buying stock index futures contracts. Indeed, buying futures maximizes the evolution of the index. Using futures, you can bet more money than you have. It may also help to minimize transactions costs which are a significant point for small investors.Investor could use futures only on one index (i.e., an intra-market spread,). This strategy requires an initial margin of $20,000. Or, they could also use a spread contract (i.e., go long on the

Forensic in Pop Culture: The CSI Effect

2367 words - 9 pages ? Findings by the journal show that the CSI Effect “shapes prosecutor discretion in many ways, which includes reliance upon 'credible' (compelling) witnesses (including forensic personnel and victims).” Methods. For my study, I conducted a short questionnaire on Survey Money in order to determine the average person's television viewing habits and how likely they were to use what they've seen on television to help them in court. It consisted of basic

The History of the Stock Market

1099 words - 4 pages mining companies. It flourished for a while until the gold rush ended where the companies went out of business and all trading and exchanges stopped. During the 2nd half of the 19th century New York City became the central financial center of the United States. After that the New York Stock Exchange became the number one trading center. The reason for this being that its members focused on buying securities of larger corporations. At that time

The Stock Market

1077 words - 4 pages The Stock Market The stock market plays a significant role in the health of the economy; the economy has to be strong for a country and its citizens to prosper. In 1929 over a period of two weeks 30 billion dollars disappeared from the U.S. economy, this was the event that started the greatest period of human hardship of the twentieth century known as the great depression. On October 19,1987 the Dow Jones industrial average plunged almost

The Stock Market Crash

962 words - 4 pages there have been documentaries on the life that was lived by the people and how they got through it, just like the character in the movie Cinderella Man, Jim Braddock. Millions of Americans and even people across the globe were hit and somewhat effected by this tragic period in history. There wasn’t just a single action or event that sparked the stock market crash. It was a series of bad judgements and choices made by the consumers, over looked

Cause of the crash in stock market

2367 words - 9 pages complete lack of explanation. To this day no definite reason for the decline has been isolated. Basic concepts such as cause and effect, predictability, and human rationality melt before the evidence of the record breaking decline1.2 2001-2002 declineThis downturn can be viewed as part of a larger bear market or correction, after a decade-long bull market had led to unusually high stock valuations. The NASDAQ was trading at 4234.33 on September 1

The Stock Market Crash of 1929

910 words - 4 pages Jones Industrial Average, the stock index showing the status of America’s economy, quadrupled during the 1920s. Speaking of the stock index, since people had more money to spend, Americans became investors in stocks. Many people invested in stocks on margin, where investors paid part of the total price (usually 10%) and used borrowed money for the rest. A large inflow of money from investing on margin came to the stock market and stock prices

A Study of the American Stock Market

1757 words - 8 pages The history of stock markets or exchanges is long and complex, and dates back before the birth of America. Early records of stock markets go clear back to the 1600’s when it consisted mostly of spice trades and shipping. The stock markets as we know them today are much different of course, and that is because of their vast ability to facilitate business all over the world. The American stock market, which we will be focusing on, was adapted

The Stock Market Crash of 1929.

915 words - 4 pages "Wall Street Lays an Egg!" That's what the front page of Variety Newspaper said on the morning of October 30, 1929, as it summed up the biggest stock market crash in American history. Let me tell you a little about that... First of all, how many of you own stock or shares on Wall Street?(Pause.) All, or most of you, probably don't. Well, work with me and picture for a minute that you do. Picture that you've invested your entire life savings into

Similar Essays

How Can Stock Index Futures Be Used For Hedging?

1708 words - 7 pages regarded as the market systemic risk. The stock index futures contracts based on stock indexes as the subject of standardized contracts, with the subject of stock and have a strong linkage between the index and the trend in the same direction. In addition, stock index futures and margin trading system, stock index futures also have low transaction costs, liquidity and take up less capital and so on. These features of stock index futures hedge make

Why The Stock Market Crashed, The Effect This Had On The American People And How It Affected The Economic Structure Of The United States.

690 words - 3 pages combined national income; the top 25% of the population took in more than 55% of the national income.The biggest reason the economy was hurt by the Stock Market crash, was because of the effect the Market had on the banks. The stock market decline caused many banks to fail, which caused many businesses to fail, which caused unemployment to skyrocket, which caused consumers to have less purchasing power, which forced existing businesses to lower

Chronicles The History Of The American Great Depression. Discusses Causes Of The Stock Market Crash. Details The Events Of Black Thursday. Describe The Effect Of The Crash On The Country.

2656 words - 11 pages The Great Depression:A Time of Struggle, Survival and ReformI. Black ThursdayA. October 24, 1929B. First day of panicC. Investors sold stock fastII. Causes of CrashA. 1924 to Black Thursday bull market kept prices upB. People thought stock was a get rich quick schemeC. Higher wages meant investing more stockD. Banks lent money on margin1. Stocks were no longer just for the richE. No regulations on banks or stock market1. Might have prevented

Overview About Liquidity, Asset Price And Chinese Stock Market

1722 words - 7 pages the market. As the increasing number of trading, the more liquid in the financial market, which means the less illiquidity is. Since the negative effects of illiquidity on asset prices, liquidity should affect the design of publicly traded securities. The more liquid a financial mechanism is, the higher price for which it can be traded. In addition, the more liquid the stock, the less costly it is for the investors to trade, which means the lower