Information Content of CSI 300 Index Futures during Extended Trading Hours: Evidence from China

Abstract

China established its stock futures exchange in year 2006, but not until year 2010 did the first futures contract become publicly available for trading. The tight government as well as the composition of market participants raises the question that whether this futures market is informationally efficient. We study the information incorporation of the futures market during the extended trading hours beyond those of the underlying spot market. Our analyses show that, first, spot market is the main information source of the futures market. In addition, using a T-GARCH model, we show that the post-closing, overnight and pre-opening returns are significantly correlated with the overnight spot market return. Second, the return innovations of the futures market significantly correlate with the overnight spot market return, indicating a price discovery role of the futures market. Finally, the futures market during the extended hours reflects the overnight news in the U.S. market.