Method And Implementation Of Pairing Trading Based On Components Of The SSE 50 Index And Stock Index Futures

Since our country introduced the margin trading on March 31,2010,the scope of it has been continuously expanded.Now,almost all of the 50 stocks corresponding to the SSE 50 index could implement margin trading business,which provides a favorable guarantee for the development of our short-selling mechanism.With the development of the securities market,the launch of stock index futures trading has been predicted,which plays a good role in promoting the development of the capital market.It fundamentally changes the situation that the stock investors can only carry out one-tier long mechanism in China.In this way,the investment modes have become more diversified in our share market,which not only reduces the risks,but also increases the investment return.Under the above background,the domestic and foreign scholars' research about pair trading of stocks or stock index futures emerges one after another incessantly,and they has many different viewpoints.This paper focus on pair trading,stocks and stock index futures,changes the existing trading style into that stocks are paired with stock index futures indirectly through stock index.Combined with co-integration theory,the approach and realization of the pairing trading between Shanghai Stock Exchange(SSE)50 index stocks and stock index futures is studied.First of all,the research status and related concepts of pair trading is briefly analyzed and summarized,the process of portfolio construction models is also explained in detail.Then,based on the co-integration rule,the SSE 50 index stocks and stock index futures is taken as the research object in this paper,the portfolios models and pair trading strategy are constructed,and the best threshold of initiation and liquidation are calculated with the maximum total return.Finally,in the case of the long and short positions,the initiations time and investment ratio of SSE 50 index constituent stocks and stock index futures are calculated by establishing investment signal trading rules,and the total return is obtained.The results of empirical analysis indicate that the portfolios established by selected SSE 50 stocks and SSE 50 stock index futures are co-integration correlation,and the rationality of SSE 50 constituent stocks and stock index futures as a pair trading product is verified.With the best threshold of initiation(1? =0.6)and liquidation(2? =-0.5),realizing the maximum of total return of SSE 50 constituent stocks and stock index futures.According to the study of the pair trading after adding the investment ratio,the time of initiation and liquidation of long and short positions is achieved.It is obvious from the total return that there is arbitrage space and substantial income,and it further explains that the pair trading can achieve hedging and reduce the risk effectively.The innovation of this paper is to expand the types of pair trading portfolio,and the type is no longer the traditional form of stock and stock or stock and stock index futures,but the more diversified stock portfolio and the corresponding stock index futures.The type of portfolio is more novel and has positive significance for the study of securities investment portfolio.