Hedge Performance Of HKEX USD/CNH Exchange Futures

The flexibility of the two-way fluctuation of the RMB exchange rate was obvious increased since a series of things these years,such as “8·11”Exchange Rate Reform when The people's bank of China started to adjust the quotation mechanism for the central parity of RMB exchange rate to make it more transparent and market-oriented and on December 1,2015,the International Monetary Fund(IMF)approved the RMB to join the special drawing rights(SDR),which became officially effective on October 1,2016.On June 27,2011,Hong Kong Treasury Markets Association launched the USD/CNH spot rate(hereinafter referred to as the offshore RMB spot exchange rate),which created a unified market benchmark spot exchange rate for the Hong Kong offshore RMB foreign exchange market.Compared to the central parity of RMB exchange rate,the offshore RMB spot exchange rate is affected by market factors much more seriously,and the exchange rate fluctuation is more flexible,which resulted in investor's rapid-increasing demand for exchange rate hedge.In September 2012,HKEX launched USD/CNH foreign exchange futures,referred to as RMB exchange futures of HKEX in this thesis.It is the world's first futures to be paid by RMB.According to China's financial information network,by the end of January 2017,RMB foreign exchange futures of HKEX daily average volume accounted for about half of global USD/CNH foreign exchange futures market share,open interest share of global market accounted for more than two-thirds.This thesis studies hedge performance of RMB exchange futures of HKEX,which is conducive to the selection of appropriate hedge ratio estimation model to reduce the risk of RMB exchange rate fluctuation.This article selects the daily closing price of USD/CNH foreign exchange futures and the corresponding USD/CNH spot rate data from November 1,2015 to December 31,2017 as the research objects,then study the hedge performance of USD/CNH foreign exchange futures by the way of risk minimization and utility maximization.The risk minimization refers to extreme risk aversion,namely,embracing the portfolio risk minimization,also called minimization of variance.Utility maximization refers to taking into account the risk of portfolio income,namely,the risk of portfolio revenue,to pursue utility maximization.In the empirical process,firstly,we estimated the optimal hedge ratio of USD/CNH foreign exchange futures by dealing the data with unit root test,cointegration test,heteroscedasticity test and utilizing OLS model,ECM model,and ECM-BGARCH model by data structure.And then,the optimal hedge ratio of each model is substituted into the performance evaluation model to measure the hedge performance.The empirical results show that USD/CNH foreign exchange futures and spot price series are highly correlated,and the series are not stable while have a long-term equilibrium relationship.USD/CNH foreign exchange futures and the spot yield series are highly correlated and the series are stable.There is a high-order ARCH effect.The best hedge ratio under the OLS model is 0.579939,and the best hedge ratio for the ECM-BGARCH model is 0.610176.The hedge cost is relatively high.Under the risk minimization performance evaluation method,the OLS model had the best hedge performance of 38.8210%,and the ECM-BGARCH model had the best outsourcing performance of 56.1287%.Under the utility maximization performance evaluation method,regardless of whether the data is within the sample or outside the sample,the performance of the hedge of each model will decrease with the increase of the degree of risk aversion,and the hedge of the OLS model gets the best performance under the same level of risk aversion.What's more,the out-of-phase performance of each model sample is better than the sample's internal hedge performance.Finally,for investors,it is recommended that investors who pursue risk minimization should use the ECM-BGARCH model when using USD/CNH foreign exchange futures for hedge.And that investors pursuing utility maximization should use USD/CNH foreign exchange futures for hedge.Select the OLS model when maintaining the value.In addition,relevant departments are advised to build an onshore RMB futures market to innovate RMB derivatives to meet the hedge needs of investors and allow RMB derivatives to better serve the real economy.Which,will be conducive to internationalization of the RMB as well.hedge performance...