Research On The Arbitrage Of Chinese Soybean Futures Market

As a result of the T+0trading system and margin system in the future market, the volatility of the future price is greater than stock price’s. Much more, with the deepening of the international level of future market, the volatility of the domestic futures prices will increase. These all will bring the investor more risk. So, consider of such risk, using the arbitrage trading to reduce the risk will be a good choice for investors. The essence of arbitrage trading is the price spread.In contrast to the volatility of future price the spread has a lower volatility. In addition, the spread can describe the relationship between the price series. When this relationship is stable we can use the unreasonable spreads to earn profit. This paper tries to analyze the relationship between the future price series and further to build the co-integration model and arbitrage strategies.Different from the previous studies, this paper will focus on the transaction threshold and the performance on the arbitrage strategy. In order to obtain the excess return of the arbitrage strategy, we construct the future index to represent the market portfolio.We choose the beans future as our research object because the beans future has a long history and its market’s scale is large, which advantageous to build the arbitrage strategy. We choose the soybean future, soybean oil future, soybean meal future of the Dalian Commodity Exchange as the beans future.First, we build the co-integration model between three price series, use of coefficients of the model as the proportion of the position of the arbitrage portfolio. Finally, the arbitrage portfolio we obtained is1soybean future,0.1623soybean oil future and0.8507soybean meal future. It means buying1soybean future selling0.1623soybean oil future and0.5807soybean meal future in the meantime or selling1soybean future buying0.1623soybean oil future and0.5807soybean meal future in the meantime.Next, we use the spread series which gets from the co-integration model to build the transaction threshold and the risk control threshold. In building the transaction threshold, we construct the function between the expected return and the coefficient of transaction threshold. So we can get the transaction threshold through optimizing the function. While we use the method of VaR to solve the risk control’s threshold.After the construction of the arbitrage strategy we simulate the arbitrage trading. The result of the simulated trading in sample shows that, the rate of annual return and the sharp ratio reach16.48%and1.2887respectively. In contrast with the market portfolio performance of arbitrage strategy is better than the market portfolio. The excess return of the arbitrage strategy reaches9.03%. This also proves the beans future market between2006and2012wasn’t the weak form of the efficient market. While the result of the simulated trading out of the sample shows that the rate of annual return is-14.49%which worse than the market portfolio’s. The reason for the worse performance out of the sample may be the inadequate length of the sample data.Furthermore, we also investigate the performance of the arbitrage strategy in the different economic conditions. The result shows that the performance in the economic boom period and in the economic crisis period is better than the performance in the period of economic adjustment. The arbitrage strategy can get the best profit in the period of economic crisis.