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Index futures trading and spot volatility in China: A semiparametric approach with range‐based proxies

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Journal of Futures Markets

Published online on

Abstract

We relax the linear conditional mean assumption in Hsiao et al. (2012). Journal of Applied Econometrics, 27(5), 705–740 and extend it to a single‐index semi‐parametric setting. The asymptotic distribution properties are derived and the semi‐parametric model is applied to study the treatment effect of introducing the stock index futures contracts in China. Our empirical results indicate that the introduction of stock index futures significantly reduced stock market volatility before October 2014, but the long‐run effect is not significant. This temporary stabilization effect is robust to different underlying spot indexes, to various proxies of volatility, and to placebo tests on the introduction date of stock index futures.