The cross-market dynamic effects of liquidity on volatility: evidence from Chinese stock index and futures markets

摘要

This article investigates the cross-market asymmetric dynamic effects of liquidity on realized volatility and its intersection with jump volatility between Chinese stock index and futures market. The influence of index liquidity on futures market volatility is negative significantly after controlling for the long memory feature of realized volatility, and becomes much stronger for the after-crisis period. Liquidity of the futures market has a relative weak positive impact on stock volatility, and becomes insignificant after crisis. Our study reveals different influence mechanisms from the commonly known information transmission that new information is reflected in futures prices and volatility more quickly. The cross-market dynamic effects are time-varying and not influenced after controlling for jump volatility. Especially, index liquidity impacts positive jumps of both markets, while there is no impact of futures liquidity to index jump volatility.