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Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective.

ABSTRACT: This paper explores a method of managing the risk of the stock index futures market and the cross-market through analyzing the effectiveness of price limits on the Chinese Stock Index 300 futures market. We adopt a cross-market artificial financial market (include the stock market and the stock index futures market) as a platform on which to simulate the operation of the CSI 300 futures market by changing the settings of price limits. After comparing the market stability under different price limits by appropriate liquidity and volatility indicators, we find that enhancing price limits or removing price limits both play a negative impact on market stability. In contrast, a positive impact exists on market stability if the existing price limit is maintained (increase of limit by10%, down by 10%) or it is broadened to a proper extent. Our study provides reasonable advice for a price limit setting and risk management for CSI 300 futures.

SUBMITTER: Xiong X

PROVIDER: S-EPMC4646506 | biostudies-literature | 2015

REPOSITORIES: biostudies-literature

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Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective.

Xiong Xiong X Nan Ding D Yang Yang Y Yongjie Zhang Z

PloS one 20151116 11

This paper explores a method of managing the risk of the stock index futures market and the cross-market through analyzing the effectiveness of price limits on the Chinese Stock Index 300 futures market. We adopt a cross-market artificial financial market (include the stock market and the stock index futures market) as a platform on which to simulate the operation of the CSI 300 futures market by changing the settings of price limits. After comparing the market stability under different price li ...[more]

PMID: 26571135

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Project description:Market liquidity ensures the marketability of security and is an indispensable feature of stock markets. Previous studies have emphasized the role of stock market liquidity in empirical finance. However, they have inadequately explored its multidimensional nature. This study eliminates the ambiguities related to market liquidity by precisely measuring it by using popular and proven liquidity measures. As such, the present study aims to evaluate market liquidity in terms of depth, breadth, tightness, and immediacy in the Indian equity market and also identifies crucial interdependencies between liquidity dimensions. The study selects 500 stocks constituting the NIFTY 500 index of the National Stock Exchange, India, as of 26th May 2019. The data on trading volume, bid price, ask price, the number of shares outstanding, closing share prices were retrieved for the period from 1st April 2009 to 31st March 2019. The study employs Share Turnover, Amihud Illiquidity Ratio, Relative Quoted Spreads, and Coefficient of Elasticity of Trading for liquidity measurement. The Vector Auto-Regressive (VAR) model is used to establish the simultaneous relationships between liquidity dimensions. The analysis is conducted at the aggregate market level as well as across turnover based stock groups divided based on their rankings in terms of stock specific share turnover. The empirical results evidenced the presence of consistent depth, strong breadth, and immediacy but lower tightness in the Indian equity market. The market depth and tightness appear to be relevant in determining dimensional interdependencies. Also, less frequently traded stocks exhibit higher illiquidity in the wake of lower tightness. The findings of this study will assist the investors to wisely understand the multifaceted nature of market liquidity and base their trading decisions accordingly. Moreover, the regulators of the stock exchange can devise liquidity enhancing policies based on the directional movements among liquidity dimensions.

Dataset Information

Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective.

Publications

Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective.

Similar Datasets

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