Emprical Research For Hedging Effect On Shanghai And Shenzhen 300 Stock Index Futures

There are two kinds of risk, systematic and unsystematic risk, exist in stock market. Unsystematic risk can be reduced by portfolio, while systematic risk can be dropped by appropriate avoiding risk instrument in which stock index futures is such a way to resolve this question. One characteristics of China's stock is that there existed a sharp fluctuation and in indexes and a great systematic risk. As a consequence of this, China Financial Futures Exchange officially launched the Shanghai and Shenzhen 300 stock index futures in April, 2010 aiming to provide a platform of avoiding cash market risk for stock market investors.One basic function of stock index futures is to hedge. It is the fact that cash prices and futures prices have their own respective obits while the trend of their prices fluctuated. That is to say, the existence of basis risk made ineffective hedging lie in hedging relationship. Therefore, how to calculate hedge ration correctly will play an important role in evaluating any stock index futures market functions and will be also an important element of hedging activities for companies. Besides, criteria in Accounting Criteria for Companies No. 24------hedge require companies adopt hedge accounting method on the basis of meeting the conditions of hedge accounting use. However, an important presupposition of hedge accounting use is that companies can evaluate effectiveness of hedge and prove hedge highly effective. Thus, evaluating effectiveness of hedge is a basic presupposition for implementing correctly corporate hedge accounting criteria.Then, whether newly-launched the Shanghai and Shenzhen 300 stock index futures in China can give full play to hedge or not. If they are used as hedge, how high effectiveness of hedge will be. As an emerging market, we need to verify and answer the above problems. This thesis summarized the basic theory of hedge and its model. Based on it, the author did an empirical study on the Shanghai and Shenzhen 300 stock index futures hedge ratio by selecting 50 sample indexes from the Shanghai and Shenzhen 300 stock index portfolios in order to evaluate the effectiveness of the Shanghai and Shenzhen 300 stock index futures hedge. Three methods, OLS, B-VAR and ECM are employed in this study so as to analyze the effectiveness of hedge portfolio on three different terms of contract and evaluate three models of hedge. The results show that it is practical to evaluate effectiveness of three models of hedge. Moreover, three methods can draw same conclusion on calculating effectiveness of hedge. Investors can use the Shanghai and Shenzhen 300 stock index futures to operate hedge whose ratio is above 80%. Also, there is a high effectiveness in hedge relationship. It is firmly confirmed that the Shanghai and Shenzhen 300 stock index futures played an important role in avoiding systematic risk of cash market, protecting investors and promoting healthy development of China's securities market.The research methods and conclusions of this thesis offer some guidance to the fund companies, pension funds, insurance funds and other institutional investors use stock index futures to hedge investment activities. Meanwhile, it will be a value for accounting and financial management officers in the companies to make a correct evaluation on calculation of hedge ratio and effectiveness of hedge in order to apply hedge accounting and hedge portfolio reasonably.