Relationship between the CSI300 Futures Market and Spot Market: an Empirical Analysis Based on Birge-Massart Threshold Denoising

Price limit mechanism is one of main factors causing nonsynchronous trading problems. If it is ignored that the effect of price limits on transaction prices, spurious conclusions about the relation between the futures and spot markets can be obtained. This study uses Birge-Massart threshold denoising method to revise the impact from price limit mechanism, and then empirically analyzes the short-term causal relationship and long-term equilibrium relationship between the CSI300 futures market and spot market. The empirical results suggest that: (1) the Birge-Massart threshold method can make a good job for revising the impact from the price limit mechanism, and the price limit mechanism exaggerates the reaction of the futures market to the shock of the spot market and vice versa; (2) nonsynchronous trading problems caused by the price limit mechanism weaken the relationship between the CSI300 futures market and spot market. It implies that the nonsynchronous trading problems make the market efficiency of the futures market looks like weaker than it is.