The Csi 300 Index Futures Empirical Research On The Optimal Hedge Ratio Model

The fact that China’s security market has experienced an explosive growth in the past few years makes it impossible to satisfy market participants’ increasing demand for investing and risk-hedging with only a few basic investment tools. Therefore investors now are in an urgent need of more diversified investment products. As a response to this circumstance, the CFFEX (China Financial Futures Exchange) introduced the first stock index futures in the April,2010. Stock index futures can hedge spot investment risk, but hedging effectiveness depends heavily on the exactness of hedge ratio. Therefore investors also require an effective model to calculate right hedge ratio.In this situation, I conducted this empirical study to test effectiveness of OLS model, VECM, VECM-GARCH model and MRS model (Markov Regime Switching) to hedge the Hushen300Stock Index futures. Unlike some other empirical studies at home, I use the real transaction data of the Hushen300Stock Index futures instead of simulation transaction data or Monte-Carlo-simulated data. For completeness, I spare some samples for conducting out-of-sample tests. By comparing both in-sample and out-of-sample test results, the conclusion is drawn that MRS model can provide the most effective hedge ratio to hedge against the Hushen300Stock Index. Based on the conclusion, some further observations are made on the MRS model is also provided.