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ABSTRACT
After China’s stock market crash in 2015, the Chinese government imposed a series of trading restrictions on the stock index futures market. This paper examines how the relative informational role of China’s IH stock index futures and the SGX FTSE China A50 index futures varies when market trading mechanisms are subject to these major changes. We find that imposing the trading restrictions on IH futures substantially undermines their role in price discovery and volatility spillover, and renders them more susceptible to the fluctuations of A50 futures. Importantly, even after the trading restrictions are greatly eased at a later date, the importance of IH futures in price discovery and volatility spillover relative to that of A50 futures remains at a level much lower than before. Changes in liquidity and trading volumes imply that imposing the trading restrictions on IH futures drives investors to flee the IH futures market, but relaxing these restrictions is not able to attract investors back, making it difficult for IH futures to resume its important role in information transmission.
Notes
1. The first date of trading in IH futures was April 16, 2015, and we exclude the data on first 10 trading days after the IH futures were listed.
2. To avoid the impact of rapid policy changes, we exclude the period from 2015/08/26 to 2015/09/07.