Study On Arbitrage And Hedging Between Stock Index Futures And Etf

The full name of Stock Index Futures is stock price index futures, refers to the standardized futures contracts with stock index as the subject matter, it brings to the investors the ways of bull and short selling. By investing in stock index futures, the investors can carry on arbitrage and hedging transactions on the spot market. ETF (Exchange Traded Fund), Exchange Traded Fund, is a new type of fund products, which adopt completely passive index-based investment strategy. Through tracking and fitting a representative benchmark index, it can avoid individual investor's non-systematic risk, so access to the similar return of index.On April 6,2010, the launch ceremony of stock index futures was held in Shanghai, China, marking China's short selling mechanism becomes a reality, and changed the model that investors can only get unilateral profits from the stock rise. Refer to ETF Funds, the launch of index futures will enrich the ETF's investment strategy, and will increase the arbitrage and hedge transactions between index futures and ETF. This paper takes stock index futures and ETF as the study subject, using empirical methods to study how to act arbitrage and hedge transactions between index futures and ETF funds.Firstly, the paper gives a basic introductions of stock index futures and ETF, so as to deepen the readers' understanding. Secondly, the paper discusses the development of stock index futures theory. Through using risk measurement model, the paper assess the systemic risk existence of ETF, and it is necessary to use index futures to hedge. The paper also uses the OLS Model to assess the hedge ratio between stock index future and ETF. Finally, through a case study, the article describes two investments strategies between stock index futures and ETF. The first method, construct the spot with ETF to realize the arbitrage between the futures and spot. The second method, the combination of stock index futures and ETF,that is implement the arbitrage when the trend of basis and alpha is contrary. And the empirical results tell us that the second method get a higer profit. That is the innovation of this passage.