The Empirical Research On The Hedge Between Treasury Bond Futures And ETFs

Under the economic background that interest rate marketization process is speeding up, treasury bond futures restarted in 2013. Following the 5-year Treasury futures, the 10-year Treasury futures launched in March 2015. With the interest rate derivatives increasing in China, treasury bond futures are becoming effective interest rate risk management tools of institutions and small and medium-sized investors for its advantages in liquidity, leverage, convenience and so on.Now two treasury bond ETFs are trading in China. The composition bonds of the indexes which they are tracking are almost the deliverable bonds of 5-year Treasury futures. As treasury bond ETFs are more flexible and cheaper in trading, they become the ideal spot of treasury bond futures. On the basis of these two treasury bond ETFs, combined with classical theory and model of hedging, this paper selects ordinary least square model (OLS), binary vector autoregression model (B-VAR), error correction model(ECM) and EC-GARCH model (EC-GARCH) to research the hedging function of treasury bond futures from the perspective of empirical. This paper also has further discuss in the best choice of hedging period, in order to provide the empirical basis and practical advice for treasury bonds futures hedging model and period selection.The empirical results including that:treasury bond futures really has hedging function on treasury bond ETFs, and the hedging effect on Guotai ETF is better than that on Jiashi ETF. The hedging ratios estimated by these four models have the similar level, and the ratio of EC-GARCH model is the biggest which also has the best hedging effect. Comparing the two existing financial futures in China, the hedging effect of treasury bond futures is less than the stock index futures, and longer-term hedging is more recommended.