Research On Hedging Effectiveness In China's Future Market

The rapid development of China's economy and the ongoing turmoil in international market make the Chinese enterprises assume growing price risk, Enterprises urgently need to use financial derivatives for risk aversio, so the future market whose main function is avoiding risks becomes more and more popular. But Since the development of China's futures market has gone through many twists and turns, hedging effectiveness of the market is not promising for all businesses. Most of the existing domestic research focused on the optimization of solution model of the optimal hedge ratio, there is few literatures on the development of China's future market, neither of the effectiveness of the hedging. Purpose of this study is evalueating the hedging performance of China's future market combined with the development process objectively, from the theoretical and empirical aspects. Through an analysis of representative futures, raised some reasonable proposals to improve the hedging effectiveness of China's future market.Frist I omb the development and changes of China's future market in phases since establishent. Through analyzing and interpreting the policies and regulations, as well as market participants and significant impaction, summarized the characteristics and reasons of the development of China's future market in detail. And using various types of macro data to surpport the analyzing. Then choose copper, cotton and natural rubber,which represente market situation well and have sufficient demond in the future market, applying four major estimated optimal hedging strategies and models--ordinary least square estimator, Vector Error Correction Model, Binary GARCH Model, Modified ECM-GARCH---to get the optimal hedge ratio. And take the sample structural change into account, fixed the OLS optimal hedge ratio. Then the conclusion comes by comparing the hedge effectiveness among different futures and modles.The conclusions include:(1) China's futures market has been a steady stage of development, meet the conditions of effective hedging transaction. But there are differences between futures'development, the hedging performance of copper is superior to agricultural; (2) ECM and B-GARCH model performed better when considering the well developed futures, OLS moldle, which is easy to operate, performed better in agricultural futures; (3) Optimal hedging ratio of the OLS modle has been significantly improved by modification, so we suggest that firms could use the easy-handling modle in practice. Finally we propose some resonable advise in policy and market supervision, as well as the trading system and participants of the future market in China.