An Empirical Study Of High Frequency Spread Arbitrage In CSI 300 Index Futures

CSI 300 index future launched since April 16,2010, it has profoundly changed the landscape of China’s capital market. Institutional investors can hedge market downside risk with CSI 300 index future. Meanwhile, since CSI 300 stock index futures contracts are derivatives, leverage attract a lot of leverage into this market. Investors can make high returns in the short term with leverage, and investors can also lose most of their money in the short term.This article is not to forecast index futures price, is to research the potential of index futures arbitrage. Compared with developed derivatives market in foreign countries, our derivatives market is quite behind, especially in financial derivatives part. Stock index futures operated less than four years. A new market often accompany by the possibility of arbitrage, due to lack of participants and policy constraints. Later, more investors join, then arbitrage will disappear quickly. This article is to explore this topic. Traditional spread arbitrage researches often focus on pricing of stock index futures. However pricing involves many parameters estimation.Especially in China’s capital market, parameters are difficult to estimate,since the market is often driven by emotions of investors. This article use the HP filter to separate spread, trying to capture trading opportunities of the market. It turns out that this idea works well, we can earn a lot by spread arbitrage.The model in this article is not complicated. Actually,the harder of the model, the slower of the model. In high frequency trading, speed is very important. Although some models works well in back testing, but the calculation takes too much time, so it usually fail in trading area.In addition to spread arbitrage research, this paper will discuss other kinds of arbitrage and their shortness.