The Arbitrage Strategy In Future And Spot Market Based On The Three-regime Threshold Error-correction Model And The Empirical Analysis

The research focus of this paper is to use a three-regime(two threshold) threshold error-correction model to test the dynamic adjustment process between the CSI300 stock index futures and spot market in the long-term and the short term. Then we establish arbitrage strategy based on the three-regime threshold error-correction model, and analysis the effect of the arbitrage strategies.First of all, we propose the three-regime threshold error-correction model. And using the SupLM statistic, we report estimates the threshold number of the threshold error-correction model. Then using grid search method to recognize the value of the threshold which was used in Hansen and Seo(2002). Then using the quasi-maximum likelihood to estimate of the three-regime threshold error-correction model, which is also mentioned in Martens et al.(1999) study. We find that the adjustment coefficient in three different regimes are different,which means that the speed of adjustment is adjusted for changes in the price deviation. At the same time, the estimation results also proved the existence of the nonlinear dynamic adjustment relationship between stock index futures and stock index in the long-term and short-term, The effect of the futures prices on the spot price is significant, and the impact on the future price of the spot price is not obvious. This proves that the futures price is weak exogenous for the price deviation. We can be speculated that the price of the futures price is independent of the degree of deviation, and does not respond to the changes of the spot price.Second, We use the three-regime threshold error-correction model to analyze China's futures market and the spot market. We choose one-minute high-frequency data of the CSI300 Index futures price and the CSI 300 stock index price to conduct empirical research. We proof that the error correction term between the CSI 300 stock index futures and spot can be described by a three-regime(two threshold) threshold error-correction model. Then we build arbitrage strategy based on the three-regime(two threshold) threshold error-correction model,and obtained the threshold as the upper and lower limits of the no-arbitrage band. At last, we operate the arbitrage strategy based on outer sample, and give the arbitrage results, then we get the conclusion that the arbitrage strategy is successful. It has a very important significancein actual arbitrage for investors.