Impacts of Introducing Index Futures on Stock Market Volatilities: New Evidences from China

In: Review of Pacific Basin Financial Markets and Policies, Band 21, Heft 4, S. 1850024

Abstract

In April 2015, two index futures, IH and IC, respectively underlying big blue chip and small-medium stock indexes, were launched in China. However, because of a market crash, they came under strict control four months later. Using a panel-data evaluation approach, this paper examines how the introduction of IH and IC affect the volatility of their corresponding stocks. Results show that IH significantly reduces spot volatility before (after) a crash, but its function is significantly weakened during a crash. IC always fails to stabilize the spot market and even largely magnifies volatility during (after) a crash. Such different intervention effects on the two spot markets result mainly from the different levels of speculation on them.