Impacts of Speculation and Hedging on Chinese Stock Index Futures Volatility

  • Chiu-Lan Chang, Ming Fang, Charlene Yuqing Yu
Keywords: Returns volatility, Speculation, Hedging, Stock index futures, VAR.

Abstract

This study emphasizes on the relation between speculation/hedging and volatility in index futures market in China. To gauge the impact of speculation and hedging, the speculation ratio and hedging ratio are applied. A general view on impact of speculation and hedging on returns volatility is analysed. The increase of speculation will lead to the increase of return volatility, and hedging may have a stabilizing effect on the volatility. From the variance decomposition, speculation and hedging can only explain a slight part of volatility but speculation can explain a much larger part than hedging. Also, volatility can explain a larger part of speculation than hedging, which means that volatility has a larger influence on speculation than on hedging. Results suggest that the speculation affects index futures markets and the results may have implications for the market participants and governing authorities.

Published
2020-09-25
How to Cite
Chiu-Lan Chang, Ming Fang, Charlene Yuqing Yu. (2020). Impacts of Speculation and Hedging on Chinese Stock Index Futures Volatility. Design Engineering, 313 - 325. https://doi.org/10.17762/de.vi.463
Section
Articles