The Study On Hedge Ratio Of China Gold Futures Based On ECM-BGARCH Model

When it was 1980s, the futures markets of china came into being, after nearly 20 years rectification and development, now it come into new stage:rapid development, increasingly sound futures institution, more and more futures varieties. And gold futures is one of the varieties, which was traded in SH Futures Exchange. As an entity of commodity,currency and financial instruments, gold has very important investment value.Eluding the risk of CRB's price volatile is one of the basic function of futures market. To achieve this function rely on hedging in futures market. How to confirm the hedging ratio is the key point. The researching of hedging focus on brass futures and corn futures, and gold futures is rarely researched. So this paper, starting from the hedging ratio, study the best method to obtain the hedging ratio of gold futures by comparing the performance with the traditional method.The past research in hedging ratio mainly can be summed up in three model: OLS model, ECM model and ECM-GARCH model. Due to the fluctuation of futures price and spot price, between the two prices may not exist cointegrate relationship, so simple using OLS regression model might result in spurious regression. ECM model considers cointegrate relationship between the futures price and spot price.ECM-GARCH model is a model which basic on ECM model, using GARCH model measure the relationship among the variance series. But GARCH model can only estimate a single condition variance, which cannot estimate the covariance between the two sequences. Considering the change of stock price and the change of futures price affect each other, so this paper use ECM-BGARCH model to study hedging ratio of China gold futures.Through the empirical we can find these:China's gold spot price sequence and gold futures price sequence are both non-stationary sequence, but their first-order difference sequence are stationary, there exist co-integration between the two sequences; Using OLS model,ECM model and ECM-BGARCH models we can get three hedging ratios, these ratios are less than 1, and that of ECM-BGARCH models is the biggest one, that of OLS model is the smallest; comparing the hedge performance of three models, we can get a conclusion that ECM-BGARCH model can provide greater risk reduction than OLS model and ECM model, it is a more effective hedge model for china gold futures.