Article ID Journal Published Year Pages File Type
5083497 International Review of Economics & Finance 2014 19 Pages PDF
Abstract

•Introducing index futures intensifies positive feedback trading in spot market.•Positive feedback trading is present in index futures market.•Index futures market reduces volatility of spot market.•Positive feedback trading is more intense during market declines.•Introducing index futures tends to impair pricing efficiency of spot market.

This study examines the impact of the CSI 300 index futures on the underlying spot market in terms of feedback trading model. A univariate AR-GJR-GARCH-M model and a bivariate VECM-GARCH-M model are employed for the analysis. Our research reveals that the CSI 300 stock index futures market intensifies positive feedback trading in the underlying spot market which is detrimental to the informational efficiency. Furthermore, the CSI 300 stock index futures market attracts positive feedback trading in itself and this may destabilize asset prices of the underlying spot index through the index arbitrage process.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,