Research on Stock Index Futures: An empirical analysis of CSI 300 stock index futures

Lu Zhang

Student thesis: Master thesis


With the fast expanding of stock market scale in China, the number of investors is growing, and the methods for better risk management are eagerly required. Moreover, CSI 300 stock index futures contract was first listed on China Financial Futures Exchange on April 16, 2010, which attached more and more attention of domestic and overseas investors. It ended the time period of China’s unilateral capital market. Also as we know, stock index futures hedging can be utilized by investors to manage the system risk in their investment portfolio, which will provide the reference for investors to plan their investment. The key of hedging implementation is the hedge ratio defining. Therefore, the research problems of this thesis are whether the launching of CSI 300 stock index futures can effectively play a hedging role and how it hedges. Based on the related theories of the stock index futures and hedging, the CSI 300 stock index futures hedging effect will be analyzed and estimated in the process of empirical research. First of all, in order to understand the related economic knowledge, the definitions of stock index futures are described, the relevant economic functions are introduced, and the hedge theories are reviewed; which provides an essential theoretical basis for the empirical study. Furthermore, the development of China’s stock market and its index futures market are also reviewed, and the comparison between CSI 300 index futures contracts and other different index futures with a China concept are subsequently conducted, which confirms the necessity of this research. Then, the correlation between CSI 300 stock index futures and spot index are analyzed. According to their closing price, their returns are calculated. Based on these data, the descriptive statistics test, the ADF test and the cointegration test are conducted to verify the relevance of CSI 300 stock index spot and futures markets, and insure there exists a long-term stability cointegration relationship between them, which is a preparation for the further empirical studies. For the purpose of estimating the optimal hedge ratio, and evaluating the hedging effect from the point of view of returns and variance, the methods of OLS model and GARCH model are applied based on actual market data, and comparative analysis is utilized to analyze the hedging effect of CSI 300 stock index futures and H-shares index futures. Overall, it can be shown that the launch of CSI 300 stock index futures indeed played an effective hedging role to avoid the systemic risk in the stock market.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2014
Number of pages71