Can Chinese Stock Index Future and Spot Markets Influence Each Other’s Volatility? Evidence from Both Conditional Volatility and Realized Volatility

Abstract

This article explores the volatility spillover effect between the Chinese stock index futures and spot markets, testing both conditional volatility and realized volatility frameworks using intraday high-frequency data from April 19, 2012 to April 19, 2013. Under the conditional volatility framework, the results strongly indicate bi directional volatility transmission at the intraday high-frequency level. However, under the realized volatility framework there is no evidence of daily realized volatility transmission. Two robustness tests, daily conditional volatility and the VAR approach, confirm the results. This study concludes that there is an intraday volatility spillover effect, but the expected spillover effect should equal zero at the daily aggregate level.

TOPICS: Mutual funds/passive investing/indexing, futures and forward contracts, emerging, statistical methods