An Empirical Study On The Spot-future Arbitrage Of Treasury Bond Futures

Trading in 5-year Treasury bond futures has begun on September 6,2013 in China Financial Futures Exchange.It is the first Treasury bond variety that has come to Chinese market 18 years later since it was halted in 1995 due to some serious man-made violation operation events.On March 20,2015,10-year Treasury bond futures was listed in CFFEX which further enriched the product structure.As an important interest rate derivative variety,Treasury bond futures have the function of hedging underlying interest rate risks,price discovering,and promoting the interest rate liberalization,etc.Treasury bond futures development has become quite mature in American and European markets,but it is just starting in China.The previous study on the related topic in China was relatively limited and simple,therefore studying the effectiveness of spot-future arbitrage trading strategy at this moment has good academic value and practical meaning,which may provide references for actual transactions and could also examine the interactive relationship between future and spot prices.The article mainly studied the empirical results of spot-future arbitrage using two popular approaches,which are arbitrage-free interval method based on cost-of-carry model,and statistical arbitrage method based on co-integration theory.The article also designed consecutive optimization of strategy parameters such as equilibrium basis and various trading thresholds which are important to the arbitrage profits.Then the article analyzed the yield outcomes and looked at the patterns of optimized parameters,and also came up with new research perspectives and optimization method based on that.The empirical results show that the two approaches could both generated positive returns in current Treasury bond futures market.In addition,the former approach was proved to be better than the latter one from both return and risk perspectives.Besides,in both methods,the optimization of trading parameters within a moderate range could help improving arbitrage returns effectively.And the summarized patterns of optimized parameters may provide useful references for investors in practice.