Alpha Stock Portfolio And HSI300Future Hedging Strategy

April16,2010, China HSI300Stock Index Futures contracts which hadprepared and simulated for many years started trading officially in ChinaFinancial Futures Exchange. HSI300Stock Index Futures’ trading haschanged the situation that China securities market can only be unilateral longmarket in the past to long and short bilateral market at present. In2011,Shanghai Composite Index dropped from3189.68point to2345.74point andmany stocks were extremely deep down. All mutual equity funds profit wasnegative. In this situation, nascent China hedge fund had come to the fore,they basically realized a positive return.2011is the first year after stock index futures’ launch and it is also thefirst year in which China’s hedge fund was born. With the introduction ofstock index futures, investors can lock their risk through "hedging" and use"leverage" to enlarge their income.In accordance with China Securities Regulatory Commission’s currentprovision, brokerage collection banking, mutual funds which participate in thestock index futures should be mainly for hedging purposes and the value ofthe selling futures contracts which they hold shall not exceed20%of the total market value of their equity holdings. So fund special accounts, brokerage“small collection banking" and private equity fund of limited partnership arethe three main sources of hedge funds because of this policy restriction.Compared with the traditional value investors, the most importantstrategy of hedge funds is a quantitative investment approach. In this thesis,first, we do the back-test according the selection indicators of “RosefinchDingyuan Index Neutral Fund”. Second, according to the RichardTortoriello’s book–"Quantitative Strategies for Achieving Alpha", weimprove the Tortoriello’s ALPHA selection indicators and compare with theprevious selection indicators. Finally, we build the actual stock portfolio bythe optimal selection indicators using A Share’s data and HSI300stock indexfutures. We calculate the excess ALPHA return compared to HSI300Index.In the next step, we discuss the various hedge ratio model methods ofHSI300index to stock index futures. Through the regression analysisbetween HIS300Index and HSI300Index Futures Contract Month Index(IFL0), the optimal hedge ratio is received. Through this ALPHA strategy andstock index futures hedge ratio, we build this hedge strategy for investment.In the last chapter, based on the two ALPHA selecting method andoptional hedge ration, we build a simulation hedge fund and compare thebenefits of the two strategies, found that the optimal stock-picking strategy issuperior to the neutral strategy.