The Intraday Relation between Stock Market Volatility and Futures Market Probability of Informed Trading: The Case of China

Using high-frequency data, this study investigates intraday relation between CSI300 index futures (volume synchronized probability of informed trading) and CSI300 index return volatility. We first examine if CSI300 index futures can effect the stock market volatility and then, we investigate if the CSI300 index return volatility as stock market information measure can effect in the futures market. Following Easley et al. (2012), we first employ Pearson s correlation and then, we compute the joint distribution of and absolute returns. The results are as follow: First, we find that there is a positive correlation between CSI300 index futures and CSI300 index return volatility. Second, the results of the conditional probability distributions of CSI300 index absolute returns and CSI300 index futures show that the persistently high levels of in futures market can increase the stock market volatility. Finally, the results of the conditional probability distributions of CSI300 index futures conditioned on the prior level of CSI300 index return volatility show that high level of the stock market volatility can increase the in the futures market. Also, we find that the stock market plays a major role in China, apparently due to high barriers to entry into Chinese futures market.