Investor Sentiment and Microstructure Information in Index Futures Markets

42 Pages Posted: 26 Sep 2019

See all articles by Weiping Li

Weiping Li

Civil Aviation Flight University of China ; Oklahoma State University

Liu Wen Wen

Southwest Jiaotong University

Date Written: September 24, 2019

Abstract

We show how specific features of the microstructure information from VPIN and DPIN can volatile the futures market and can link with the price discover and investor sentiment. We develop an investor (institutional, noise, and both) sentiment index for the Shanghai Stock Exchange 50 (SSE 50) Index Futures, and analyze relations among the index futures return, the investor sentiment, VPIN and DPIN, illiquidity, and volatility. We first specify the informed investor sentiment index for traders who invest based on market information and uninformed investor sentiment index for irrational noise traders who provide market liquidity. Empirically, the VPIN and the investor sentiment can predict the SSE 50 futures returns in a low frequency environment, and there is a significantly negative correlation between the informed transaction and the next level of liquidity in a high frequency environment. We also show that the futures market is relatively stable under moderate investor sentiment, and the trading volume can correspond to both investor sentiment and liquidity levels.

Keywords: Sentiment Index; VPIN; DPIN; Granger Casualty; Chinese Futures Market

JEL Classification: G10; G13; G14

Suggested Citation

Li, Weiping and Wen, Liu Wen, Investor Sentiment and Microstructure Information in Index Futures Markets (September 24, 2019). Available at SSRN: https://ssrn.com/abstract=3459011 or http://dx.doi.org/10.2139/ssrn.3459011

Weiping Li (Contact Author)

Civil Aviation Flight University of China ( email )

46 Nanchang road
Guanghan, Sichuan 618307
China

Oklahoma State University ( email )

Stillwater, OK
United States

Liu Wen Wen

Southwest Jiaotong University ( email )

No. 111, Sec. North 1, Er-Huan Rd.
Chengdu
Chengdu, Sichuan 610031
China

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