Study On Correlation Between Index And Index Fund

This paper discusses the dependence structure between index fund and index in our country. Analysis correlation in financial theory and practice is a fundamental problem, but the traditional linear correlation measure has its limitations, so introduce copula-based models to achieve asymmetric, nonlinear and tail dependency structure measure.Index fund takes a passive management investment strategy to fitting the index yield, decentralized in the stock which constituent of index, and strive to maintain the stock portfolio yield as same as the average yield on the capital market. However, the reality is that the trend of index fund is not necessarily synchronized with the underlying index; even to track the same underlying index, index fund still exists in the trend deviation. So index fund tracks the index effects vary widely. This paper intends to study the correlation between index fund and index to evaluate the effects, which helps fund’s managers to constructing more effective portfolio, helps regulators to construction the market system and provide guidance to fund investors in the choice of fund investment.Firstly, this paper summarizes the achievements in copula theory and application at home and abroad, illustrates use copula-based models to measure the correlations between variables has great advantages;Second, presents an overview of the copula theory and applies copula in the modeling of financial time series with general steps in details. Static dependency structure is measured using the Archimedes family Gumbel copula, Clayton copula, Frank copula, and the three kinds of linear mixed model. Based on this method of using the scroll window and using the AR(2)-GARCH(1,1) model to fitting the dynamic parameters, which will expand the model from static to the dynamic measurement.Finally, empirical research on the dependency structure among Index LOF fund Jiashi300, Yinhua300, Penghua300and CSI300index, through copula-based models from both static and dynamic in-depth to study the variables degree of dependencies and dependencies structure.Through empirical research can be concluded that the dependency structure of index funds and index presents different characteristics, using copula-based model to measure the correlation between variables does exist a lot of advantages. And in this paper, from both static and dynamic modeling for in-depth analysis the effect of index funds track underlying index is comprehensive, makes the interpretative stronger, higher reliability, the use of correlation analysis for the selection of index funds also provide a new perspective.