China’s stock index futures (the CSI300) is the first market in mainland China where futures on Chinese stock indices can be bought. The CSI300 is a large market dominated by predominately private Chinese retail investors as opposed to institutional investors, which is rather atypical for an emerging market. This paper examines whether the introduction of the CSI300 had an impact on the volatility of the underlying spot market. Different varieties of Generalized Auto-Regressive Conditional Heteroscedasticity (GARCH) models were estimated for mainland China and compared with the A50 and HSCEI spot and derivatives markets in Singapore and Hong Kong. At the same time, spillover effects between the three markets were modelled. Overall, we find robust evidence that the introduction of the CSI300 had a calming effect on the volatility of the CSI300 spot index, as well as on both the A50 and HSCEI spot markets. Differences in the types of investors, the tightly regulated nature of China’s futures market, together with the existence of two sister markets in the region where comparable stocks are traded, may well combine to explain why China’s market resembles its counterparts in mature economies more so than in emerging markets.

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CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.
  • Martin T. Bohl is professor of economics, Centre for Quantitative Economics, Westphalian Wilhelminian University of Münster. From 1999 to 2006, he was a professor of finance and capital markets at the European University Viadrina Frankfurt (Oder). His research focuses on monetary theory and policy as well as financial market research.

  • Jeanne Diesteldorf is a Ph.D. student and research associate at the Westphalian Wilhelminian University of Münster in Münster, Germany.

  • Pierre Siklos is a CIGI senior fellow. His research interests include applied time series analysis and monetary policy, with a focus on inflation and financial markets.