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Intraday Price Discovery and Volatility Transmission in Stock Index and Stock Index Futures Markets: Evidence from China

Journal of Futures Markets, Forthcoming

32 Pages Posted: 11 Dec 2010 Last revised: 25 Jan 2011

Jian Yang

University of Colorado at Denver - Business School

Yinggang Zhou

Xiamen University - Department of Finance

Zihui Yang

Sun Yat Sen University - Lingnan College

Date Written: October 12, 2010

Abstract

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.

Keywords: Chinese Stock Index Futures Market, Intraday, Recursive Cointegration Analysis, Multivariate GARCH

JEL Classification: C32, G13, G14

Suggested Citation

Yang, Jian and Zhou, Yinggang and Yang, Zihui, Intraday Price Discovery and Volatility Transmission in Stock Index and Stock Index Futures Markets: Evidence from China (October 12, 2010). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1723232

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Yinggang Zhou

Xiamen University - Department of Finance ( email )

Xiamen, Fujian 361005
China

Zihui Yang

Sun Yat Sen University - Lingnan College ( email )

135 Xin Gang Xi Road
Guangzhou, Guangdong Province
China

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