An Empirical Study On The Basic Functions Of China 's National Debt Futures

China Financial Futures Exchange (Abbreviation for CFFE) officially launched the five-year treasury bond futures contract in September 6,2013, which was the second financial futures contract since CFFE launched the Shanghai and Shenzhen 300 index futures contract in April 16,2010, and also the re-return since China’s treasury bond futures market being in a blank for 18 years marking the further improvement and maturity of China’s financial markets. Re-listed of treasury bond futures had great significance to build a multi-level capital market, to promote the interest rate marketization reform, and to promote the development of financial derivatives. Compared with over 30 years’ experience of treasury bond futures in Western countries, China had been carried out the treasury bond futures from 1992 to 1995, and then failed for various reasons. Therefore, the bond futures are novelty to us at present. View of that China is still in the preliminary exploration stage of developing the treasury bond futures market, then it is particularly important to timely monitor and research the operation of the newly listed bond futures.Effective playing of basic functions is necessary for treasury bond futures, in general, price discovering and hedging functions are the basic function of the futures market, treasury bond futures, as a very important financial futures, is of no exception.Thinking of the situation of the treasury bond futures, basic functions,this paper is a study of these problem. Currently there are many studies about price discovering and hedging functions. Earlier studies mainly focused on the various commodities futures markets, with the stock index futures market developed in China, the study of the basic functions of stock index futures are also very active. However, during to the short time of our national debt futures market running, foreign studies have almost no studies involving samples of treasury bond futures market, while domesticrelated studies are mostly qualitative study of the pilot period of bond futures market and the analysis of the necessity and feasibility of relaunch of our treasury bond futures, empirical research is based on the existing experimental data and simulation trading transaction data. Therefore, the domestic and international research on the basic functions of treasury bond futures market is still lacking,currently. Since stock index futures and treasury bond futures are both financial futures, in order for investors to make rational trading strategy and government regulatory authorities scientific basis for decision-making, we can imitate the methods of stock index futures research ideas and methods to study the basic functions of treasury bond futures.This paper introduces the theory of treasury bond futures, the futures price discovering and hedging functions basic function. Based on the nearly one year daily trading data of China treasury bond futures officially listed, we do the empirical research on the price discovery and hedging functions of China’s treasury bond futures. We use the Johansen co-integration test, Granger causality test, Vector Error Correction Model and variance decomposition to analysis the treasury bond futures price discovering function and inspect the mutual relationship between China’s Treasury bond futures prices and spot prices. In addition, when study the hedging function of treasury bond futures, we first adopt the OLS model and vector autoregression (VAR) model to calculate the optimal hedge ratio, then based on the "risk minimization principle" to compare the hedging performance of different models. The results showed that there were Granger two-way relationship and long-term equilibrium relationship between the treasury bond futures and spot prices, the hedging performance was significant in the sample bond futures, indicating that China’s treasury bond futures has initially play the price discovery and hedging functions. At last, based on the empirical results and the status of Chinese bond pot market, this paper proposes policy recommendations to promote Chinese treasury bonds futures market better playing price discovery and hedging functions, to hope that our country will gradually build a healthy, efficient and perfect treasury bond futures market.