How Does Index Fund Utilize CSI 300 Index Future To Hedge

Stock index futures which based on stock price index is a standardized financial futures contracts, the exchange of the Stock index futures is very active. April 16,2010,the Stock index futures in china begin to exchange in China Financial Futures Exchange. CSI 300 index is the underlying asset of the CSI 300 index future contract.the exchange of the stock index futures in china make hedging possible for the stock investors especially for the institutional investors. Index fund is a kind of passive investment funds which copy the stock index by constructing stock portfolio.In chinese maket,Jiashi 300 is the representative of the index fund, which exchange is very active.Jiashi 300 construct stock portfolio to copy the CSI 300 index as well. therefore,there is a very strong correlation between the CSI 300 Index Futures and Jiashi 300,so the research of the hedging between the Jiashi300 and the CSI 300 Index Futures will become strong representation and practical significance.This article is a theoretical and empirical Combination, fully using means of the statistics and measurement. This paper discusses how to use stock index futures to hedge and the reason why we should hedging. Empirical part of this paper focus on the estimate of the Hedge Ratio and the assessment of different models.Firstly, this article comprehensively analyses the related theory of stock index futures and index funds, then this article discusses the hedging theory and the Hedge Ratio models. On this basis, this article use the daily return of stock index futures and Jiashi300 to do a number of characteristics test. From the test,we know that the daily return of stock index futures and Jiashi300 are smooth, fat tail distribution and with ARCH effects, etc. Through the liquidity test,we obtain that the contract in this month is the best hedging contract.through cointegration test,we know that there is strong cointegration relationship between the daily return of stock index futures and that of Jiashi300.In the Chapter V of this paper, models such as OLS, B-VAR, ECM, GARCH, BGARCH, ECM-BGARCH are used to estimate the hedge ratio, then this article use a evaluation model to assess the effectiveness of the six models and obtain that using stock index futures to hedge can really reduce the risk of investor assets, and we can also get that OLS model is still the best choice for stock investors to hedge in China.The data to analysis in this paper is the logarithmic difference of the Jiashi 300 and stock index futures daily closing price. The time of the data is from April 20,2010 to December 31,2010, containing 184 trading days,The main empirical statistical software used in this paper is Eviews5.0. The analysis of this paper can provide reference for chinese investors in the theoretical and practical aspects of hedging.