| As Chinese stock market continues to grow, Investors will face a huge potential risk given by the fluctuations of the stock price. Investors need some financial products to hedge for their portfolio to reduce systemic risk from the stock market. On April 16,2010, Shanghai and Shenzhen 300 stock index futures was produced. It is the first financial futures in China, but also one of the financial instruments which can be used by investors to hedge for the stock.Hedging with stock index futures for the spot, it is the key to determine the optimal hedge ratio. From the modern theory of hedging, the purpose to hedge for the spot with futures is to minimize the risk of the combination of two assets. Risk is often measured with the variance in the financial economics, therefore, the optimal hedge ratio is the ratio of future and spot when the variance of the portfolio is minimum.Currently, the most representative models to estimate optimal hedge ratio with minimum variance are OLS model, VAR model, ECM model, GARCH model. In this article, the OLS model, VAR model, GARCH model are used to estimate the optimal hedge ratio of the CSI 300 stock index futures from April 16,2010 to September 9,2010, and then the hedging performance is calculated. It is found that either within sample or out of sample, GARCH model performed best, followed by the VAR model, and OLS model performed worst. Maybe it is reasoned that the autocorrelation of residual is considered in the VAR model, and the autocorrelation of residual and conditional heteroscedasticity are both considered in the GARCH model.In addition, it is found that, contracts of every quarter continuous performed better than contracts of next month continuous on hedging for the spot with the same model. However the previous studies suggested that contracts of next month continuous performed better than contracts of every quarter continuous on hedging for spot, and the reason will be found by further study after the market is more mature... |
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