Volatility Spillovers in the CSI300 Futures and Spot Markets in China: Empirical Study Based on Discrete Wavelet Transform and VAR-BEKK-bivariate GARCH Model

AbstractChina's introduction of CSI300 futures in 2010 has aroused widespread attention to whether the stock index futures market has effectively stabilized price fluctuations of its spot market in the past four years. Since the prices of CSI300 futures and CSI300 contain numerous noises and fluctuate drastically over time, this paper applies discrete wavelet transform to denoise these series by decomposing and reconstructing their return. Further, a VAR-BEKK-bivariate GARCH model is established to study the volatility spillover effects. Empirical results show that a bi-directional volatility spillover effect exists between CSI300 futures and the spot market, but the former affects the latter in a more obvious way. The introduction of CSI300 futures also contributes to the stabilization of the stock market