The Study On The Application Of Hedge Fund Strategies In Chinese Capital Market

China officially launched the margin trading system in March 31,2010,launched stock index futures in April 16,2010,and launched 50ETF options in February 9,2015.The continuous improvement of financial market provided the conditions for the development of domestic hedge funds.Hedge fund strategies are diverse and less relevant to traditional investments.With the increasing demand of diversified investment and risk diversification,the hedge fund industry has a very broad development prospect in China.However,China's hedge fund industry is still in the primary stage of development,investors need to understand the risk of hedge funds and how hedge fund strategies apply in Chinese capital market.This paper starts the study based on this trend.First of all,this paper conducts a comprehensive introduction to all aspects of hedge funds.Secondly,according to China's capital market condition,it points out hedge fund strategies can be applied and reveals their mechanism.Thirdly,this paper chooses two hedge fund strategies,Delta neutral strategy and pairs trading strategy,and uses pubic data to carry on the empirical research.In Delta neutral strategy,this paper constructs the Delta hedge portfolio with Huaxia 50ETF Fund and SSE 50ETF option and adopts the discrete hedging method with the frequency of once a week.In pairs trading strategy,this paper adopts the method of cointegration and studies the price correlation of the stock pair,the cointegration T test and the T-statistic of residual ADF test,and uses historical market data processing to achieve cointegration equation.Besides,it tests out of sample data.The results of two sets of empirical studies show that:Delta neutral strategy and pairs trading strategy can be used in Chinese market,they can hedge market risk and avoid extreme losses.Finally,it discusses the characteristics of hedge fund strategie,some points should focus on,and recommendations to improve Chinese hedge fund industry,which includes launching more derivatives,developing domestic capital market,improving financial supervision system and cultivating hedge fund talents.