Empirical Study On Optimal Hedge Ratio Of CSI300Stock Index Futures

Stock index futures is an important financial derivatives in financial markets, investors can use stock index futures to achieve the goals of avoiding risks and locking in gains. Since1982, the United States Kansas Exchange launched the first Stock index futures contract-Value Line Index futures contract, stock index futures had been concerned by many investors of other countries. With the volume of trading in stock index futures contracts continued to expand, Japan, and Singapore and the United Kingdom, Hong Kong of China and other countries and regions have launched their own stock index futures. In2011trading volume of financial derivatives accounted for88.7%of the world’s,trading volume of stock index derivatives occupied the first place in the trading volume of financial derivatives.As far as the capital market in China.after more than20years of development,the structure of China’s capital market has been obviously improved, financial instrument has been rich, but the issue of radical fluctuating price of stocks has not been solved. Investors urgently need an investment tool to circumvent market risk. On April16,2010, CSI300index futures contracts began to be traded. It has great significance for investors, especially institutional investors, it will become important tool to hedge risk.Stock index futures has many features, hedging is an important one of these. By hedging operations investors can avoid systemic risk, which is the basis for stock index futures’s arising and development. Investors use it to avoid risks, but hedge ratio will affect the effectiveness of hedging. Therefore, determination of the optimal hedge ratios is the key point of hedging research, it is also the focus of my paper, several econometric models has been used to estimate the optimal hedge ratios.These ratios can be used to measure the effectiveness of hedging operations. I try to select several models which have good performance in hedging. Investors, especially institutional investors can use these model in hedge operations.CSI300index futures and CSI300index spot are the objects of study, selected the data of446days since the stock index futures contract has been official traded. According to the hedge theory of minimizing risk, using ordinary least squares regression model, bivariate vector Autoregressive model, error correction model and GARCH model to empirical study on hedging of stock index futures. Conclusions is as follow:effectiveness of hedging of every model is good. In comparison, effectiveness of hedging of ordinary least squares regression model and bivariate vector Autoregressive model model are the best. However, if considering on the benefits and risks of the investment portfolio, effectiveness of hedging of ECM-GARCH and error correction model are good.