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Index Futures Trading and Stock Market Volatility in China: A Difference-in-Difference Approach

Authors

  • Shiqing Xie,

    Corresponding author
    1. Shiqing Xie and Taiping Mo are collocated at Department of Finance, School of Economics, Peking University, Beijing, P.R. China
    • Correspondence author, Department of Finance, School of Economics, Peking University, 100871 Beijing, P.R. China. Tel: +86-010-6275-7260, Fax: +86-010-6275-1460, e-mail: sxie@pku.edu.cn

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  • Taiping Mo

    1. Shiqing Xie and Taiping Mo are collocated at Department of Finance, School of Economics, Peking University, Beijing, P.R. China
    Search for more papers by this author

Abstract

Using panel data, which consist of stocks listed on the Chinese stock market during the period May 2005 to December 2012, this study examines the impact of the introduction of CSI 300 index futures on stock market volatility. A multi-period difference-in-difference (DID) approach is used to check whether the volatility of the underlying CSI 300 stocks increases relative to a matching set of non-CSI 300 stocks after the introduction of index futures. This study finds that the spot price experiences a long-term trend of diminishing volatility commencing in 2009. Although volatility initially increases several months after the introduction of CSI stock index futures, the difference does not seem to persist as there seems to be little long-run impact on spot price volatility from the introduction of index futures trading. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:282–297, 2014

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