The Impact of Decreased Margin Requirements on Futures Markets: Evidence from CSI 300 Index Futures

The purpose of this study is to investigate whether margin downregulations helped enhance the functions of index futures markets following the stock market crash in China in 2015. Using high-frequency trading data, we estimate the changes in the price discovery and volatility spillover relationships between the CSI 300 index and its futures. We find that reducing the margin ratio strengthens the lead role of futures in the lead-lag relationship and results in more volatility transmission from futures markets to the stock market. Furthermore, this paper shows that the expiration-day effect negatively influences the two functions.