The effect of stock index futures to stock market volatility

Abstract

Based on daily closing price of Shanghai-Shenzhen 300 Index from 16st April 2008 to 16st April 2011, the paper constructs the GARCH model in order to study whether the Chinese stock markets show some significant change in the volatility after the introduction of stock index futures trading. The empirical analysis shows that the new information weakens the effect of the volatility of stock market, and the effect of old information on the market increases after the introduction of stock index futures. The conclusion is that the launch of stock index futures decreases the volatility of spot market.