Research On Correlation And Hedging Strategy Of Stock Index Futures And Spot Markets

Stock index futures is a financial derivative developed in 1980s, which is a kind of futures with the largest trading scale in the world now. It is an agreement with the stock price index as the trading target and the two trading parties buy or sell fixed number of stock index with a certain price at a certain time in the future. As an important financial innovation, stock index futures plays a vital role in the development process of stock market. It can be used to hedge market systemetic risk caused by spot price fluctuations. The realization of hedging function is based on the theory of the high correlation between stock index futures and spot markets. Because these two markets have similar trend by the same economic factors, operating on the two markets reversely can make the profit and loss instead. That is to say, investors can lock the spot risk no matter how much loss spot market suffers from fluctuation of stock market. The higher the correlation level is, the better the effect of hedging will be. Therefore, it is significant to analyze the correlation between stock index futures and spot markets from the perspective of regulators and investors. Theory analysis and empirical research are employed to study the correlation and hedging strategy of stock index futures and spot markets.There are six chapters in this paper. Chapter one is the introduction, which contains the background of the topic, significance of the research, surveys of relative literature and the main research contents and stucture. Chapter two is the study of the price correlation between stock index futures and spot markets, mainly including the test on the long-term equilibrium relationship of the two markets and the correlation structure characterization. Chapter three is the study of the volatility correlation between stock index futures and spot markets, mainly including volatility features clustering and volatility spillovers between the two markets. Chapter four studies the impact of stock index futures on information efficiency of spot market. Chapter five studies the hedging strategy of the stock index futures and spot markets, including the optimal hedging ratio determination and optimal spot portfolio construction. Chapter six is the summary and outlook of the study, which summarizes the main conclusions, innovations, application prospects and the future research. The relative research achievements are listed as follows:(1) The paper examines the long-term equilibrium relationship between international stock index futures and spot prices and the volatility spillover from international stock index futures markets to Chinese stock market. The main contribution is that we use the method of Independent Component Analysis (ICA) to study volatility spillovers from stock index futures markets to spot markets. It remedies the deficiency of using traditional methods to solve high dimensional financial time series volatility problem in the past. The ICA-EGARCH-M model we established not only confirms the existence of volatility spillovers effect, but also reflects the main origins of volatility spillovers.(2) The GJR model in econometrics and Approximate Entropy (ApEn) approach as the method of time series information efficiency measurement are employed to discuss the impact of stock index futures trading on information efficiency of stock market in the international markets. By comparing the changes of information factors impacting volatility and ApEn values of time series complexity before and after futures trading, we find that the information flows to the spot market more quickly and the information efficiency of the spot market is improved after the introduction of stock index futures.(3) The research on hedging strategy of stock index futures and spot markets contains two aspects.On one hand, as for the question of optimal hedging ratio, we establish dynamic hedging model of stock index futures based on minimum Mean-Conditional Value at Risk (Mean-CVaR). The main contribution of the model lies on that it not only examines the impacts of confidence level and variable trading fee to optimal hedging decision, but also better fits the features of heteroskedasticity and time-varying correlation coefficient existing in return residual series. Furthermore, the hedging effectiveness of different models on Chinese futures market is tested by empirical calculation on hedging of real trades in CSI 300 futures market.On the other hand, we study the problem of constructing spot portfolio which has better linkage with stock index futures. Two-stages optimization strategy is applied to improve the portfolio's tracking accuracy. In the first stage, time series clustering method based on independent component analysis and fuzzy C-means algorithm is utilized and the composite stocks corresponding to the CSI 300 stock index futures are clustered. In the second stage, index optimizing replication is done with the clustering results in order to minimize the tracking error and determine the weights of spot portfolio's composite stocks.