Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/25553
Title: The impact of H-share derivatives on the underlying equity market
Authors: Wang, SS
Li, W
Cheng, LTW 
Keywords: Difference-in-difference approach
Liquidity
Stock index derivatives
Volatility
Issue Date: 2009
Source: Review of quantitative finance and accounting, 2009, v. 32, no. 3, p. 235-267 How to cite?
Journal: Review of Quantitative Finance and Accounting 
Abstract: We conjecture that an introduction of the Hong Kong Hang Seng Chinese Enterprise Stock Index (H-share Index) futures induces additional speculating activities in the underlying equities, leading to an increase in volatility and volume of the underlying stocks. Whereas, a subsequent introduction of H-share index options increases the level of informed trading and opens up opportunities for speculative and arbitrage activities using futures directly against options. These futures and options trading activities are much cheaper and more efficient than using the underlying stocks, leading to a significant decline in spot market volatility and volume. Our results are consistent with these arguments. We also find that derivative trading does not change the liquidity of H-share constituent stocks. Further tests based on the difference-in-difference approach confirm that the above findings are robust.
URI: http://hdl.handle.net/10397/25553
ISSN: 0924-865X
DOI: 10.1007/s11156-008-0094-7
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