An Empirical Study On The Fundamental Functions Of The Hushen300 Stock Index Futures

The Shanghai-based China Financial Futures Exchange launched the country's first stock index futures on April 16, It marks a milestone in making China's financial markets more professional and less speculative.The basic functions of the stock index futures market are price discovery and hedging, so how this market fulfills its functions will soon became a hot issue after the found of the markets. This paper will take form of the empirical analysis as the main pole and theoretical analysis as the auxiliary pole. We evaluate the two fundamental functions based on the transaction data of Hushen300 stock index futures.Price discovery and hedging was separately introduced from a theoretical point of view. With regards to price discovery, Firstly, this paper introduced the meaning of price discovery, and then analyzed the cause of price discovery and the influence factor of its efficiency. For the hedging, the article explained its economic implication and introduced some kinds of hedging, analysis steps of hedging was also introduced.The paper empirically studied the price discovery from the aspects of price lead-lag effect and volatility spillover effect. Within the framework of VEC model, we applied cointegration test and Grange causality test to see whether there exist long term equilibrium between futures price and spot price, and then investigate price discovery both in long run and short run terms. To further understand the information reaction pattern, the BEKK was applied to study the transmission process of secondary moment of price change between these two markets.Aim for minimizing the hedging risk and base on a spot portfolio consists of 30 stocks which are most-held by the funds, we empirically researched the hedging function of Hushen300 stock index futures market. We compared the hedging effectiveness of dynamic model with that of static model, and found out the best hedge ratio calculation model.Based on the empirical results and combine with the practical operation of futures market, we comprehensively evaluated the fundamental functions of the market and then gave some advice on how to improve the risk management function.