CSI 300 Stock Index Futures And ETF High Frequency Statistics Arbitrage

This essay puts forward to take Jiashi CSI300ETF (Code:159919) and Hua Tai Bairui CSI300ETF (Code:510300), both were newly founded in Feb.2012, as the spot of Shanghai and Shenzhen300Stock Index Futures, for high-frequency arbitrage.Firstly, we have a comprehensive comparison of the purchase-redemption pattern, the trading mechanism, the tracking error and other aspects of the two ETFs, and analyze their advantages and disadvantages in trading efficiency, trading cost and high-frequency arbitrage’s operation. Then according to the co-integration relation between the ETFs and the stock index futures, we establish statistical model to describe and predict the price of stock index futures, and also give a reasonable interval for stock index futures’price in the coming day. Finally, based on the estimated price interval, the feasibility of high-frequency arbitrage was confirmed, and by making and simulating trading strategy, we also calculate the cost and profitability in arbitrage.While analyzing the relation between the two ETFs and stock price futures, we introduced two main models-Co-integration model and Error Correction Model. The former is used to represent long-term and stable relation between the two prices, but the latter is a supplement out of the consideration that, high-frequency financial data are usually self-correlated and not stable in short term.The results show that at high-frequency level, Hua Tai Bairui CSI300ETF, compared with Jiashi CSI300ETF, has a higher correlation coefficient with CSI300Index and stock index futures, and also a smaller tracking error, both present higher precision. In addition, stock index futures’price once deviated from its reasonable interval for many times, but in general the period is very short and deviation range is not large. If take the trading cost into account, then the arbitrage opportunity with positive earnings is greatly reduced, thus minimizing the arbitrage cost is of significant importance. What’s more, Hua Tai Bairui CSI300ETF, as the spot of stock index futures, provided less chance for arbitrage than Jiashi CSI300ETF. However, considered that Hua Tai Bairui CSI300ETF implements T+0trading.mechanism, and is more attractive for arbitragers than Jiashi CSI300ETF in T+2, the phenomenon can be explained.Also to note is, the sample data used in modeling and parameters estimation are 1minute high-frequency price from December18,2012to December21,2012. And the simulation of trading strategy used1minute high-frequency price in December24,2012, which guarantees the independence of data source.