An Empirical Study On Optimal Hedging Ratio Of China's Gold Futures

Gold is a very special and important commodity that plays an extremely important role in the overall economic development.Gold itself has the dual nature of financial products and commodities,so that the influence factors of the price also are very complex.The resulting degree of fluctuations in the price makes all aspects hard to estimate,for example,the emergence of Britain to take off the referendum events immediately aroused New York gold futures prices soaring.Therefore,it's necessary to make a comprehensive and deep study on the gold market,which can actively make gold futures risk aversion to greatly develop,promote the mature development of gold spot market and even the whole financial market,improve the participation of the gold market risk management level of enterprises,protect the interests of the investors and stabilize the financial market order.The key problem of promoting gold futures markets to play their function is that we should use the optimal hedge ratio to make futures hedging.There are many kinds of hedge ratio estimation methods,such as the initial OLS,B-VAR,ECM model,GARCH,Copula et al.Trying to find out the best model to calculate the optimal hedge ratio,many scholars have carried on the thorough research.Each model is brought up after a long-term test.However,because of the characteristics of typical facts of the financial market,it makes the method nonscientific to deal with the relationship between the gold futures and spot data.So we can't get rigorous accurate hedging ratio.Under the premise of the full understanding of the content from the previous scholars' study,we introduce of EVT model based on Copula connect model and establish the calculation method of the minimum variance hedge ratio in order to get the optimal hedge ratio and efforts.We choose the Shanghai futures exchange spot gold and gold futures prices in a row as the indicators.After a description of the corresponding statistical characteristic analysis,we use five different volatility models,including AR-GARCH-SKST,ARFIGARCH-SKST,AR-HYGARCH-SKST,AR-FIEGARCH-SKST,AR-FIAPARCHSKST,to obtain their earnings standard residuals sequences.Then we establish the different copulas connect and EVT-Copula connect model after converting the marginal distribution.Then we select a better fitting effect T Copula connect model to acquire the dynamic dependence coefficient between them.By using the minimum variance,we obtain the different hedge ratio and hedge efficiency between them.The specific conclusions are as follows:Firstly,we choose the long history of gold spot and futures price data of yield sequence to describe the differences in the basic statistical analysis.We find that the two groups both have obvious characteristics of biased,peak,thick tail and stability.It is also very explicitly rejected the assumption of normal,independent identically distributed distribution.There are obvious characteristics of correlation and heteroscedasticity.However,the financial assets have the characteristics of the typical fact,which is hard to capture from the normal distribution assumption and the traditional method.Secondly,according to the previous period by gold spot and futures returns the sequence of the EMH theory which can explain the fact that typical characteristics,we establish the AR-GARCH-SKST,AR-FIGARCH-SKST,AR-HYGARCH-SKST,AR-FIEGARCH-SKST,AR-FIAPARCH-SKST five volatility models to get their standard residual error sequence.The results prove that the FIAPARCH model in fitting of yield sequence has a good effect.Thirdly,the standard of different volatility models are used to get the residual sequences corresponding probability integral transform corresponding marginal distribution model.Then we establish four types of time-varying Copula connect model,including the SJC Copula,Clayton Copula,Gaussian Copula and T Copula function.Through the akaike information criterion to determine that T Copula connect model is a better fitting effect.Then via T Copula connect model,we get the gold spot and futures prices of dynamic coefficient of dependent relationship.The result shows that the two markets has very obvious dependency relationship,namely,spot gold or the degree of price fluctuation in the futures market will cause the other's price volatility of the market.So it brings some risk to investors or enterprise.In order to avoid this risk,people can use hedging.Fourthly,we establish the EVT model transformation marginal distribution and T Copula connect model to calculate the hedging effectiveness of hedging efficiency,then we compare with the results between using EVT model and not using EVT model.We found that this model can improve the effect of the hedging in a certain extent.Among all hedge ratio model established in this paper,the best result is ARFIAPARCH-EVT-SKST model.By joining EVT or not to join EVT-Copula connect model of Hedging ratio,we find that H(Hedging ratio)value difference is relatively small.There are differences between the hedge efficiency but not very obvious.Some scholars use different methods to calculate the results and get the similar result.We can make use of this method through the corresponding proper Hedging gold futures contract to reduce the loss of investment.According to the research conclusion,we put forward five suggestions:(1)In the study of the relationship between spot and futures,we should take into account the specific yield and choose the appropriate method to study the distribution characteristics.According to the comparison results of the model in this paper,based on AR-FIAPARCH-SKST-EVT-T-Copula connect model,it can effectively to capture and fit characteristics of typical facts,which has been widely applied in combination with the minimum variance method that can get gold between spot and futures dynamic hedging ratio.(2)Considering the dynamic change characteristics of financial markets,we should pay attention to the actual situation to choose the appropriate method in a similar safety operation.(3)To promote the development and perfection of China's gold futures market and much more risk-averse functions in the futures market,it needs to be risk-averse entity enterprise must also bear the risk of fluctuations in the price of market.Besides,relevant departments should be grasped the nettle and make a difference to improve and perfect China's gold futures market as soon as possible.(4)It is a skill that the participants in the market economy must master the importance to hedge.As long as the openness of the enterprise in the market,they are inevitably influenced by the market price fluctuations,which can affect their assets and product prices.In addition to the creation of surplus value,risk aversion is also important factor to measure the core competitiveness of an enterprise.(5)Hedging involving the knowledge content is very extensive.It not only make the market sensitive with clear enough but also master sufficient theoretical foundation and know a large number of econometric empirical operation method.The lack of it could lead to serious loss to the relevant units,so it requires the government,enterprises and universities should be sufficient attention to the cultivation of the hedging talents and training.Besides they should create a professional and skillful hedge and comprehensive skilled talents.For hedging market,participants should provide professional service of precise to reduce their loss and risk,maintain their legitimate rights and interests,and maintain the market stability.