Performance Of China's Cotton Futures Market Hedging

Hedging is one of basic function of futures market. Through futures contracts, hedgers can make risk management, decline or convert disadvantageous price risk. It is hedging performance that reflects the efficiency of the futures market. As the biggest product and consumption country of the world, the Chinese cotton futures market plays an important role in the national economy although it was born just for a short time.So it is necessary for us to analyze the efficiency of Chinese cotton futures market form the aspect of hedging performance. Meanwhile it can offer empirical evidence for the government who can make policy for the futures market's standard development and for the enterprise and individual who can make tactics for hedging.At first, this paper introduces the process and status quo of china cotton futures market and makes a concise comment on theory about function of futures market. In order to research hedging performance of Chinese cotton market, this paper will make use of ordinary least square, bivariate-vector autoregression, error correction mechanism three models and measurement index to empirically research the hedging ratio and performance of the cotton futures market. The results of results of research suggest the week's best hedging ratio of cotton futures exceed those of day. Form the three models, the hedging ratio and performance of ECM excel those of OLS and B-VAR, out of sample's hedging performance is superior to inner sample's.