Do futures lead the index under stress? Evidence from the 2015 Chinese market turmoil and its aftermath

摘要

Do index futures still lead the spot market over government intervention or under trading restrictions? This intriguing question can be explored in the context of the 2015 Chinese market turmoil with frequent government interventions and its aftermath when unprec-edentedly severe restrictions were imposed on the trading of the CSI 300 index futures. The intraday price discovery, studied via VECM, became weakly bidirectional over the boom phase from October 2014 to June 2015, in contract to the index futures' strong leading before the boom. The futures' leading status weakened drastically over the crash phase between June and September 2015, probably due to the government's interference with the stock market. Surprisingly, the futures under severe trading restrictions after the crash from September 2015 to June 2016 still led the spot weakly, and the volatility spillover to the index was somewhat significant. Policywise, the empirical findings imply that government interventions or trading restrictions weaken the functioning of markets.