The spillover effects of the trading suspension of the treasury bond futures market in China

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Journal of International Financial Markets, Institutions and Money, ISSN: 1042-4431, Vol: 8, Issue: 2, Page: 205-218

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POON, Pui Han, Winnie; FIRTH, Michael Arthur; FUNG, H. G.
Elsevier BV
Economics, Econometrics and Finance; Beta risk; Market liquidity; Spillover effects; Business Administration, Management, and Operations
article description
The purpose of this study is to empirically investigate the equity market response to the suspension of trading in the Shanghai Treasury bond (T-bond) futures market in 1995. We examine the equity market because of its dominance in the Shanghai Stock Exchange. The equity market is worth over 60% of the total turnover in value (i.e. about 31.9 billion yuan in July, 1995). Specifically, we study the return and liquidity responses of both Shanghai and Shenzhen A and B shares. Results indicate that, while suspension of trading for the Shanghai Treasury-bond futures has a significant impact on the risk of the Shanghai B share returns only, it appears to improve the market liquidity of both A and B shares on the two exchanges.