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2014•Journal of Northeastern UniversityRequires access

An Analysis of the Interactive Effects Between HS 300 Index Futures Market and Its Spot Market

Tian Shu-x

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Abstract

With the VEC model and EGARCH model,an econometrical test was taken on the interactive effects of arbitrage between HS 300index futures market and its spot market.The results showed that the selling of futures contracts in arbitrage trading led to a decline in futures'prices,but its spot prices were not driven by the buying of spot contracts due to the limited transactions,which meant the convergence of basis between HS 300index futures market and its spot market was not caused by the negative feedback effects between them but by the futures price responding faster to information than the spot price.Thus,it can be concluded that the arbitrage between HS 300index futures market and its spot market played a boosting role rather than a buffering role in the asymmetric volatility of the spot market.

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What this paper is about

With the VEC model and EGARCH model,an econometrical test was taken on the interactive effects of arbitrage between HS 300index futures market and its spot market.The results showed that the selling of futures contracts in arbitrage trading led to a decline in futures'prices,but its spot prices were not driven by the buying of spot contracts due to the limited transactions,which meant the convergence of basis between HS 300index futures market and its spot market was not caused by the negative feedback effects between them but by the futures price responding faster to information than the spot price.Thus,it can be concluded that the arbitrage between HS 300index futures market and its spot market played a boosting role rather than a buffering role in the asymmetric volatility of the spot market.

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Available abstract

With the VEC model and EGARCH model,an econometrical test was taken on the interactive effects of arbitrage between HS 300index futures market and its spot market.The results showed that the selling of futures contracts in arbitrage trading led to a decline in futures'prices,but its spot prices were not driven by the buying of spot contracts due to the limited transactions,which meant the convergence of basis between HS 300index futures market and its spot market was not caused by the negative feedback effects between them but by the futures price responding faster to information than the spot price.Thus,it can be concluded that the arbitrage between HS 300index futures market and its spot market played a boosting role rather than a buffering role in the asymmetric volatility of the spot market.

Key concepts: Futures contract, Spot market, Arbitrage, Normal backwardation, Futures market, Spot contract, Forward market, Financial economics

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