Intraday Volatility Spillovers between Index Futures and Spot Market: Evidence from China

This paper examined the volatility spillover effects between futures market and spot market in China, using both VAR model and TVP-VAR model. This study found strong bi-directional volatility spillovers between CSI futures and spot markets, and the change of futures’ volatility decreased the change of spot market's volatility. This results support the hypothesis that the risk management function of the futures market could calm the whole market when new shock comes.The innovation of this paper is to capture the dynamic of the relationship by using the TVP-VAR model. The empirical results show that the influence of futures market on spot market enlarged as time passed,especially at the third quarter of 2011. After that, the relationshipbecame stable.