The Empirical Analysis On Hedging Performance Of Stock Index Futures

Up to now, there has been 26 years of history since the day when U.S. launched the first stock index futures contract—value line index futures contract. After more than 2 decades of development, it has become one of the most successful futures in the international financial derivatives market and countries launched their stock index futures contracts one after another. It is also called"the most exciting financial innovation".In recent years, world stock markets have undergone high fluctuations. Emerging market economies, especially, with fast economic growth, have continuously attracted investors'attention. Such market fluctuations, however, were relatively high and somewhat unforeseeable, which therefore confronted investors with high price volatility risks. China, as emerging economy, launched the simulation trade of Shanghai and Shenzhen 300 index futures contract more than one year ago and its formal launch is only a matter of time. One of the paper's purposes, therefore, is to conduct research on utilizing stock index futures to hedge for assets position to avoid the system risks of price fluctuations, based on which the optimum hedging strategy is achieved by comparison.Since Shanghai and Shenzhen 300 index-China's first stock index futures, is still in the stage of simulation trade, and at the absence of investors'risk awareness, there is strong speculation but small demand for hedging in simulation trade market. The paper, therefore, conducts empirical analysis to Hang Seng index futures of mature Hong Kong Stock Exchange that is in strong correlation with mainland securities market. It adopts many methods including 4 models: OLS, B-VAR, ECM and EC-GARCH. It appraises the effectiveness of in-sample and out-of-sample hedge, measures and compares, meanwhile, the performance of hedging strategies. The result indicates that whatever methods the investors adopt, they can all avoid risks of price fluctuations, just lower the risks to different extents. Since conditional hedging strategy fully uses new information in stock market, to employ dynamic hedging method like ECM and EC-GARCH appears to be more effective than other hedging techniques.