HSI Futures Open Interest and GDP Growth Volatility in Hong Kong: An Analysis Under the Linked Exchange Rate System

This paper examines whether Hang Seng Index (HSI) futures-market depth is associated with the volatility of Hong Kong’s real economy under the Linked Exchange Rate System (LERS). Using quarterly data from 2000Q1 to 2024Q4, futures-market depth is measured by the logarithm of quarterly average main-contract open interest (Depth), while macroeconomic volatility is measured by the rolling standard deviation of real gross domestic product (GDP) growth. The preferred three-lag vector autoregression (VAR(3)) provides only modest full-sample evidence of a macroeconomic role for futures-market depth. Lagged Depth does not significantly predict GDP-growth volatility (p = 0.2253), and the baseline impulse response turns negative after the initial quarters but remains statistically indistinguishable from zero at the 90% and 95% levels. At a twelve-quarter horizon, Depth innovations explain 1.22% of GDP-volatility forecast-error variance, compared with 38.16% for Chicago Board Options Exchange Volatility Index (VIX) innovations and 57.90% for GDP-volatility’s own innovations. The sensitivity analysis reveals differences in predictive evidence and response significance across specifications. Predictive evidence strengthens under a twelve-quarter volatility measure, reversing the contemporaneous ordering of Depth and GDP volatility produces a short-run negative response significant at the 90% level, and controlling for major crisis-period level shifts generates a negative response significant over several horizons at the 95% level. The ordering-free generalised response remains negative over much of the horizon but statistically indistinguishable from zero. Overall, HSI futures-market depth carries a modest average macroeconomic signal, with inference sensitive to the volatility window, identification, and crisis controls, while global risk remains the dominant external source of GDP-growth volatility in the estimated system.