An Empirical Study On The Hedging Function Of Chinese Treasury Bond Futures

In September 6, 2013, the listing and trading of China’s 5 year bond futures contract provided the appropriate interest rate risk management tool for the national debt investors. In March 20, 2015, China Financial Futures Exchange launched the 10 year bond futures contract, treasury holders have a further choice. Bond investors hedge the interest rate risk of the spot through the Treasury bond futures contract,reduce the uncertainty of market trade, improve the level of risk management.Because the development time of treasury bond futures market in China is relatively short, bond futures hedging effect is not known, for this, this paper makes an empirical study on the 5 year treasury bond futures contract and certificate medium-term bond index. On the basis of the review of related theories of the Treasury bonds futures and the hedging related theories, the article calculates the corresponding hedge ratio by the OLS model 、 VAR model 、 VECM model 、BEKK-GARCH model and ECM-BGARCH model, and evaluates the hedging performance of samples inside and outside the five models through the HE index and the HS index, results found: Based on the consideration of risk minimization principle,five models are able to avoid a certain degree of interest rate risk, but OLS model is the best for the sample inside data, ECM-BGARCH model is the best for the sample outside data. Based on the consideration of risk benefit balance principle, the hedging effect of ECM-BGARCH model is the best whether it is in sample or out of sample.However, when we evaluate the hedging effect of the 5 year Treasury futures contracts on the whole, it is found that the hedging effectiveness of 5 year treasury bond futures is not ideal, and when we analysis the hedging effect of 5 years, 10 year bond futures on Treasury bond index of different remaining period,the result not only validates the conclusion,but also finds that the hedging effect of 10 year bond futures is not ideal. On the whole, the hedging function of China’s treasury bond futures can not work effectively. This shows that China’s treasury bond futures market still has many deficiencies, so this paper puts forward some policy suggestions in the end.