Research On Stock Index Futures Hedging Strategy Based On Investor Sentiment

In the traditional stock index futures hedging theory,the investors are rational.People suppose that investors are the same when studying on the stock index futures hedging related research.However,with the development of behavioral finance,a lot of studies have confirmed that investor sentiment has important impact on the stock index futures market.So it would be important to incorporate stock index futures sentiment in the process of hedging of stock index futures,which could help investors avoid the risk of the stock price volatility.In this paper,first,we summarize the relevant literature on stock index futures hedging theory and models.Then we make a simple commentary and point out that the B-VAR model,ECM model and GARCH model are widely used in the study of hedging strategy.Second,we take a brief introduction of investor sentiment and it's effect on financial markets.In this paper,we construct a composite stock index futures sentiment considering interest opening,volume,BSI index and PSY index.Third,this paper summarizes the concept,development and functions of stock index futures and makes a simple analysis of hedging operational processes about CSI300 stock index futures,which points out that the determination of hedge ratio is the key point to hedging.Fourth,we divide the CSI300 and CSI300 stock index futures closing price from 16 March,2010 to 30 September,2014 into two groups based on stock index futures sentiment,including high investor sentiment group and low investor sentiment group.Then we make empirical studies respectively by using the B-VAR model,ECM model,GARCH model and evaluate the hedging effect,which comes out that the ECM model is more suitable to hedge for CSI300 stock index futures market both in high investor sentiment and low investor sentiment.The effect of hedging when using ECM model in high investor sentiment is better than that in low investor sentiment.This paper provides a reference for investors when they hedge in different emotional states,which would help them avoid the risk of stock price volatility better.