Theoretical And Empirical Research On Rolling Hedge Strategy Of Stock Index Futures

After40years of development, the stock index futures has grown into one of the most important financial derivatives, which is due to the fact that the hedge function provides the effective risk hedging mechanism for the stock market. The hedge function has always been the research focus. However, most researches focus the conditions which can provide the appropriate futures with the suitable duration or high mobility. If the futures markets fail to provide the appropriate hedge instruments, the investors have to roll the hedge forward using the short-dated futures in order to match the duration of asset. As the research on the rolling hedge strategy can provide the scientific and rational suggestions for those investors, it holds the application value.The paper will carry on the theoretical and empirical research on the rolling hedge strategy based on the research object of stock index futures. Firstly, the background, literature review and the research contents will be introduced.; Secondly, the paper explains the definition of stock index futures rolling hedge, analyzes the basis theory of rolling hedge strategy; Thirdly, the paper uses the dynamic programming method which mainly solves the multi-period decision in order to get the optimal hedge ratios of rolling hedge, then with the time series theory, the estimation of the multi-period roll hedge ratios is developed.; Finally, the Hang Seng Index futures would be used to compare the effectiveness of the multi-period roll hedge ratio and the traditional single-period roll hedge ratio under the OLS, Vector Auto Regression, vector error correction model (VECM), VECM-GARCH model.Through the empirical study, the conclusions are obtained. Firstly, both multi-period and traditional single-period rolling hedge models can effectively eliminated the most risk; secondly, compared with traditional rolling hedge, the multi-period hedge ratio boost hedging effectiveness on risk reduction; finally, among the econometric model, the estimation with VECM holds the best hedging effectiveness in spot and futures markets of Hang Seng Index. The result is also applied to the estimation of the single-period hedge ratio. So the estimation based on the VECM is suggested in the Hongkong stock market.