The Economics of CSI300 Stock Index Futures in China

Abstract

Chinese financial markets play an ever more pertinent role within the global economic. In this thesis, we investigate empirically the efficiency and functioning of the Chinese Security Index 300 (CSI300) index future. While CSI300 index futures market is a relatively new market, it has attracted huge trading volume and liquidity as there is no other financial derivatives markets in China and the short-selling in the stock market is difficult. Therefore, it is important and informative to examine both the hedging effectiveness and price discovery ability of CSI300 stock index futures.
This thesis presents one of the first attempts in empirically investigate the market efficiency and hedging effective of the Chinese stock index futures from 2012 to 2018. In particular, chapter 2 studies the hedging effectiveness of CSI300 index futures with both static and dynamic hedging methods. The results show that CSI300 stock index futures is an effective hedging instrument, and in general the performance of dynamic models are better than static models. In chapter 3, we analyze the price discovery contribution of CSI300 index futures market in the context of six relevant hypothesis and three empirical measures (PT/GG, IS, and MIS methods). The price discovery performance of Chinese stock index futures is found to be consistent with the other mature markets, indicating that new information that affects the fundamental value is reflected more quickly in the CSI300 index futures markets. Finally, using the efficient market hypothesis and unbiasedness hypothesis, CSI300 index futures is also found to be informational efficient in chapter 4. The market is partially efficient and the futures price is a constant risk unbiased predictor for the subsequent spot price in the long run.
Different from previous literature which focus on the CSI300 futures and spot market, this thesis utilizes various data frequency and futures with different maturity to address the empirical issues regarding the functioning of CSI300 futures market. In addition, this thesis is the first study to the impact of regulation reforms in 2015 (when Chinese regulators strictly tightened the rules on trading stock index futures) on CSI300 index futures market. Finally, the performance of the CSI300 index futures market has been compared and evaluated with other more mature index futures markets around the globe. The findings of this thesis have important implications to market regulators and participants in developing more effective investment and regulatory strategies.