Research Of Strategies For Cotton Futures Hedging

Cotton is the most important agricultural economic crops in China, focusing on cotton production, circulation; the formation of cotton processing industry is the backbone of the economy of China. The industry also occupies a pivotal position in the national economy in China. However, due to recent volatility in the spot price of cotton, cotton cultivation, distribution, processing industry revenue is very unstable, which seriously affected the sustainable development of China's cotton industry. Futures market is an important risk management area in which the use of hedging function of its stock to avoid price fluctuations of cotton. The operating strategy is important. Traders operating strategy whether develop with the actual characteristics of market and contracts directly related to the efficiency of hedging transactions. Based on this, the paper studies two aspects of the cotton futures hedging function: (a) The cotton futures market's liquidity, distribution and timing of hedging contract options; (b) The efficiency of different hedging strategies and its causes.Paper first sort out the domestic and foreign literature and commentary on this basis the concept paper on the proposed definitions and assumptions, then established the overall research framework and ideas. Then paper introduced the study sample data sources and model methods. In part of Cotton Futures Liquidity's study, using non-parametric mean comparison and multi-dimensional liquidity measure indicators of systemic liquidity of cotton futures contracts in the horizontal and vertical inter-temporal distribution patterns and differences. In the part of optimal hedge ratio'study, component to VECM model and the BEKK-GARCH model based on static and dynamic optimal strategy of the cotton futures hedge ratio measurement model. Then paper gives the results of the model parameter estimation and the results of the optimal hedge ratio. In the framework of the minimum variance, paper component the efficiency of two different hedging strategies, and analyze the causes of this difference caused. Finally, the conclusion summarizes the empirical research, and provides some suggestions about the actual operation of recommendations.