China's Csi 300 Stock Index Futures Hedging Strategy

Outstanding feature of Chinese stock market is that the fluctuation range of stock price is big, and the systemic risk is high. However, the systemic risk is unable to dodge through the dispersive investment. The stock index futures whose object is stock price index is one of the financial futures, and it is the best tools to avoid systemic risk. China has developed the simulative transaction of HS300 stock index futures contract at present, and it prepares to promote the official transaction in April 16th,2010. It can be expected that in order to adapt to the gradually opened capital market, more and more investors will avoid the risk and lock in profits through the stock index futures market. Therefore, to research the hedging strategy of stock index futures is of great theoretical and practical value to the investors.The article will carry on the quite comprehensive theoretical and empirical research to the hedging strategy of stock index futures. First of all, the article outlines the process of hedging transaction, and it proposes that the key taches of hedging are determination of the best hedging ratio and the dynamic adjustment of futures contracts. Secondly, we make the empirical research on the best hedging ratio of Chinese HS300 stock index futures, using cointegration and other analytic methods and using least squares regression model (OLS), bivariate vector auto regression model (B-VAR), error correction model (ECM) based on cointegration, generalized autoregressive conditional heteroskedasticity model (GARCH), error correction-GARCH model (ECM-GARCH). We evaluate the validity of hedging to each model, and concluded that ECM-GARCH model is relatively the best. Therefore, ECM-GARCH model is the most suitable model to estimate the best hedging ratio of Chinese HS300 stock index futures. Then, we detailed analyse the dynamic adjustment process of the hedging contracts through cases, and proposes questions which should be pay attention to in every tache of hedging transaction. Next, we provide some hedging strategies and methods for the institutional investor who carried on the hedging operation of stock index futures.