Research On The Influencing Factors And Asymmetric Effect Of CSI300Index Futures Basis

On April16,2010, Chinese Financial Futures Exchange officially launched China’s first stock index futures contracts-CSI300stock index futures contracts. In less than three years, the daily turnover of the CSI300stock index futures has exceeded800billion Yuan. On February2,2012, the newly revised " management provisions of client account in futures markets" addresses the problem of public fund stock index futures account, which means that the public fund will officially enter the stock index futures market. It is beneficial for public fund to reduce transaction costs and to manage liquidity, and it also provides new space for the public fund’s product innovation and strategic design. How to use the Shanghai and Shenzhen300stock index futures for hedging and arbitraging is what these fund companies are eager to find out. And the CSI300Stock Index Futures Basis is crucial if people want to the use Shanghai and Shenzhen300stock index futures to hedge or arbitrage. This article will attempt to do empirical research for the influencing factors of CSI300stock index future basis and the basis’s asymmetric effect, to provide a reference for the hedgers and arbitrageurs CSI300stock index futures market and to better achieve their purposes of hedging or arbitraging.This paper mainly uses the following five parts to study the influencing factors of the CSI300index futures and the basis’s asymmetric effect:The first part is an introduction for the background of the paper’s topic, the significance and the research methods and it also reviews some research of basis at home and abroad.The second part is a simple overview of the Shanghai and Shenzhen300stock index futures, their subject as well as the characteristics of the basis through graphic analysis. The paper observes the dividends of constituent stocks of the CSI300Index are cyclical and dividends are mainly concentrated in the month of May to August. At the same time, it is also found that there is an obviously reverse relationship between the CSI300index and ratio of futures and spots’daily turnover.The third part is an important part of the whole paper. Based on a variety of theory proposed by many domestic and foreign scholars, this part of the paper first qualitatively analyzes the various influencing factors of the CSI stock index future basis. And then, it does empirical research on these factors influence on the CSI300Stock Index Futures Basis by using simple linear model, ARMA model and GARCH model. By using a simple linear model, the paper finds that there is a negative relationship between10year-note rate or3-month loan rate and the continuous contracts’basis of the CSI300index futures, and at the same time, through the empirical analysis this article also finds that the dividend yield and the continuous contracts’basis of each period have a positive relationship. Next, in this part, the paper studies various types of continuous contracts’basis by using the ARMA model and finds that the basis’lags of various types of continuous contracts has a significant positively impact on the basis. And then we introduce two variables of spot index and the time to maturity to ARMA model to study their influence on the CSI300Index Futures Basis. The results show that the two variables have a negative impact on the Basis of the CSI300index futures. In the empirical study of the impact of market sentiment on the CSI300stock index futures Basis, the paper first establishes pessimistic and optimistic dummy variables by setting threshold of the magnitude of the ups and downs of the spot index and then introduces the two dummy variables to the ARMA model. Ultimately, the empirical results show that when the spot market in a time of optimism, such sentiments are easier to conduct to the stock index, futures market, thus making the basis of the Shanghai and Shenzhen300stock index futures smaller while when the spot market is in a pessimistic mood, such pessimism is not easily transmitted to the stock index futures market. In this section, the article also studies the month effect of the basis of CSI300index futures. The empirical results show that in January and September, compared to the other months, the basis is significantly smaller. While in the dividends peak period-June, the basis is significantly larger than that in other months. This result indicates that the CSI300index futures’basis does have month effect, which reminds arbitragers and hedgers in the market to consider that such kinds of effects may occur to these monthly delivery contracts when they use basis to make investment decisions. Then the paper uses the natural logarithm of daily trading volume of the stock index futures as the proxy variable of trading cost and establish GARCH model to do empirical research on the impact of transaction costs on the Basis of the CSI300index futures and the study results shows that the increase in transaction costs will causes a significant increase in the volatility of the basis. The last part of this chapter takes advantage of the ARMA model and build the relative volatility to research the impact of the relative risk of future and spot markets on the CSI300Index Futures Basis and finds that there exists rather significantly negative relationship between the lag order term of "relative volatility" and the CSI300Index Futures Basis. This means that hedgers in the stock index futures market may prefer daily hedging and using the previous day’s market’s relative risk in order to decide whether to hedge and how much to hedge next day.The fourth part is also an important chapter of this paper. This part studies the asymmetric effect of the Shanghai and Shenzhen300stock index futures. In this part of this paper, I mainly take use of symmetrical effects model and asymmetric effect to empirically study the impact of basis on the risk structure of the yield of spot and future. The final empirical results show that the positive and negative basses of CSI300stock index futures indeed have asymmetric effect on the volatility of the Shanghai and Shenzhen300spot and future. When the basis is positive, as it increases, the current volatility of will increase; when the basis is negative, as it decreases, the volatility of spot and future will decrease.Meanwhile, the empirical results also show that this impact of positive basis is greater than that of the negative basis. Through the empirical results, you can also see with the increase of the CSI300stock index futures basis the correlation between the stock index and futures prices first increases and then decreases. On this basis, the article further studies whether it is helpful for hedgers to improve the hedge effect if we consider asymmetric effect of the CSI300stock index futures basis. By comparison the hedging effect with the OLS model, DCC model as well as symmetric effects model, we find that for the CSI300index futures if hedgers take into account the asymmetric effect of basis in determining the hedge ratio, they will be able to improve the hedging effect.The fifth part is the last chapter of this paper; It mainly summarizes the results of the above empirical parts of the thesis in previous chapters, and integrates these results to draw the final conclusion of this article. At the same time, in this section, this article also put forward some further research directions for later scholars.