The Research On Hedging Effectiveness Of Gold Future

Gold can be both a normal commodity and financial equipment. After the collapse of Bretton Woods System, the fluctuation of the word gold price has had a bad effect on the production a consummation of the related enterprises. To hedge the fluctuation of gold price, the gold futures came to the market. We begin whit the basic introduction of futures and hedging theory. And to study the effect of hedging in gold market by futures contracts, this thesis comprehensively show the development of the study on hedging theory. We research four major hedging model including OLS, B-VAR, B-VECM, Multi-GARCH. The OLS provides a single-stage and static model, while the B-VAR and the B-VECM provide multi-stage static model. As for the multi-GARCH model, it shows a multi-stage and dynamic hedging ratio.And to analysis which model would be the best one, we used the minimum variance hedge ratio approach. The data used in the empirical research are weekly price of Shanghai gold price and COMEX futures price. The study shows that the hedging effect of B-VAR and B-VECM, which have considered the serial correlation, are better than that of OLS model. The exits of co-integration makes the B-VECM have better hedging effect than the previous models. The fluctuation of price has the characteristic of heteroskedasticity, which makes the GARCH model have the best hedging effect. At the end of the research, we simulate a case of a gold company in our country to learn how to use the GARCH hedging model to guide the risk management, and provide the enterprise an advice on selecting a suitable futures amount.