Title: Can Stock Index Future Really Stabilize Stock Market? The Evidence from Chinese Stock Market
Abstract:The financial theory shows that future markets can stimulate the information production, and therefore provide more information for uninformed traders, hence to stabilize the stock market. This paper ...The financial theory shows that future markets can stimulate the information production, and therefore provide more information for uninformed traders, hence to stabilize the stock market. This paper investigates whether the Chinese CSI300 index futures can stabilize the Chinese stock market. By using the econometric approach of Bai (2003) and Stock and Watson (2011) to estimate the latent global factor from panel data of international stock markets, this paper controls the economic fundamentals and employs the equal variance test of Yang et al. (2014) to compare the volatility of the CSI300 stock index before and after the appearance of CSI300 index futures. We find that CSI300 index futures can help to stabilize the Chinese stock market significantly.Read More