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Empirical Economics

Erschienen in:

05.07.2016

The evolving nature of intraday price discovery in the Chinese CSI 300 index futures market

verfasst von: Qiang Liu, Gaoxiu Qiao

Erschienen in: Empirical Economics | Ausgabe 4/2017

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Abstract

This paper reports a study of the evolution of the intraday price discovery of the Chinese CSI 300 stock index futures, utilizing minute-by-minute data for the two consecutive periods of April 16, 2010–July 30, 2010 and August 2, 2010–June 15, 2011. Innovatively, the empirical analysis employs a no-arbitrage-based error correction model (ECM) between the index and the theoretical index implied by the futures’ price. It is found that futures followed the index in the first period, but evolved to lead the spot in the second period. Interestingly, however, futures led within 30 min of the spot’s opening in each trading day, even in the initial first period of the futures trading. Fortuitously, the ECM seems to yield reasonable estimates for the arbitrage cost.

Vorheriger Artikel Co-movements and contagion between international stock index futures markets

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Data for January 2013 (from www.cffex.com.cn).

Those are the trading hours for the two Chinese stock markets. The CSI 300 index futures trade from 9:15 to 11:30 a.m. and from 13:00 to 15:15 p.m.

After the market is closed each day, the number of shares for computing the index, which may differ from the number of shares outstanding, is provided to fee-paying clients by China Securities Index Co., Ltd.

At any time, four CSI 300 index futures on the March cycle are traded. Trading of a contract ends on the third Friday of its delivery month.

It is also commonly called the cost-of-carry model. Note that even though short sales of stocks were not allowed at that time, the fair price formula still holds because the CSI 300 index represents an investment asset (Hull 2009).

This was suggested by Jun Liu.

Available from www.chinamoney.com.cn/fe/Channel/19438.

The China Stock Market and Accounting Research (CSMAR) Database includes markets data and financial statements of public traded companies in China and is now part of the Wharton Research Data Services (WRDS).

For completing an arbitrage with a round-trip of trading stocks, the total transaction cost amounts to roughly 18 points, given an index at 3000 points (see Sect. 3 for assumptions).

We thank an anonymous referee for identifying a possible mistake in our initial statement.

The entire model may not be estimable with two constants c and \(\mu _1\) or \(\mu _2\). A second anonymous referee is thanked for noting this.

Rittler (2012) employed the theoretical and market prices of futures in VECM, which may still be prone to the basis-bias.

VECM parameters can be estimated by either maximum likelihood (MLE) or ordinary least squares (OLS), which are equivalent asymptotically. The residual series from MLE show significant autocorrelation and heteroscedasticity, however. Therefore, the reported VECM model is estimated by OLS, and the inference utilizes the Newey–West standard errors.

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Titel: The evolving nature of intraday price discovery in the Chinese CSI 300 index futures market
verfasst von: Qiang Liu
Gaoxiu Qiao
Publikationsdatum: 05.07.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2017
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-016-1115-3

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