Intraday Price Discovery and Volatility Transmission in Stock Index and Stock Index Futures Markets: Evidence from China
University of Colorado at Denver - Business School
Xiamen University - Department of Finance
Sun Yat Sen University - Lingnan College
October 12, 2010
Journal of Futures Markets, Forthcoming
Using high-frequency data, this study investigates intraday price discovery and volatility transmission between the Chinese stock index and the newly established stock index futures markets in China. Although the Chinese stock index started a drastic falling immediately after the stock index futures were introduced, we find that the cash market plays a more dominant role in the price discovery process. The new stock index futures market does not function well in its price discovery performance at its infancy stage, apparently due to high barriers to entry into this emerging futures market. Based on a newly proposed theoretically-consistent asymmetric GARCH model, the results uncover strong bidirectional dependence in the intraday volatility of both markets.
Number of Pages in PDF File: 32
Keywords: Chinese Stock Index Futures Market, Intraday, Recursive Cointegration Analysis, Multivariate GARCH
JEL Classification: C32, G13, G14
Date posted: December 11, 2010 ; Last revised: January 25, 2011
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