Empirical Research For Stock Index Futures Hedging Strategies

When we invest in the stock market, the risk include s systemic risk and unsystematic risk. In 1980 s, the world’s first stock index future was born in Kansas City Board of Trade(KCBT). And it can reduce the systemic risk which makes the investors feel troubled. Stock index future is an important financial derivative, which has the dual characteristics of stocks and futures. Its function s include market discovery, price guide and so on. Because of its risk aversion function, it is more and more popular in the investor, and its scale is also expanding gradually.After the financial crisis in 2008, the systemic risk in stock market of China is still large, so the investors are in urgent need of a tool to hedge this risk. In April 16, 2010, China Financial Futures Exchange(CFFEX) officially launched the CSI300 stock index futures, which is made for China stock market specially. Because of its characteristics, it brought investors to investment boom. When we hedge, however, we should consider how to choose the optimal hedging strategies to minimize risk and achieve the maximum benefit. And it is also the purpose and significance of this researchIn this article, I chose the closing price of CSI300 stock index futures for the hedge ratio research, the in-sample interval is January 4, 2011 to September 17, 2013. And the out-sample interval is September 18, 2013 to September 30, 2014, the data is used to test the effectiveness of the hedge ratio for the financial market in the future. When the correlation between the stock portfolio yield and the stock index futures yield is higher, we will achieve a better hedging performance. So we choose the stock which has a correlation greater than 0.5 to compose the investment portfolio. Then we calculate the hedge ratio under different hedge model and horizon. And after the comparison of the hedge performance, we can choose a hedge strategy that is consistent with our national financial circumstances. In this article, we used four hedge models, the static models include OLS model, B-VAR model and ECM model, and the dynamic model include GARCH model.Finally, through the analysis of hedging performance under different strategies(except for ECM model) we find that: the hedge performance is almost close and all relatively high. But in the out-sample interval, the performance of dynamic model is slightly better than that of static model. So if the investor chooses the dynamic model to adjust the hedge strategy constantly, he will get a better hedge performance. In addition, it also finds that the performance under longer hedge horizon is better than that under shorter horizon. So we can get the conclusion that the longer hedge horizon is more beneficial in our stock index futures market.