How to Improve the Price Discovery Function of China's Stock Index Futures Market

Abstract

Establishing a stock index futures market is an important part of financial supply-side reform, aimed at improving the effectiveness of financial asset prices, enhancing the efficiency of financial resource allocation, thereby improving the price discovery function of the futures market and promoting financial services to the real economy. The key to improving the price discovery function of the futures market lies in how to effectively measure market information and evaluate the validity of information. Based on the heteroscedasticity effect widely present in financial markets, this paper proposes a uniquely identifiable information share index and a volatility spillover-adjusted information share index. Using these two indices, this paper studies the price discovery capability of China's stock index futures market. The research results show that the information contribution of A-share futures and spot markets is a relatively complex process: more information is initially discovered in the futures market, but the information contains more noise; the spot market reinterprets the information from the futures market, and thus the effective price mainly comes from the spot market's interpretation of information, which includes both information "discovered" by the spot market itself and information that flows in from the futures market through volatility spillovers and is reinterpreted. The conclusions of this paper not only enrich the research on quantitative indicators of price discovery but also provide new ideas for China's further effective management of the futures market.