Research on Hedging Strategies for the CSI A500 Index from the Perspective of Combined Futures Hedging
- 1 Chengdu Foreign Languages School, Chengdu, China
- 2 Chengdu Foreign Languages School, Chengdu, China
- 3 School of Economics and Management, University of Electronic Science and Technology of China, Chengdu, China
Abstract
In September 2024, China launched the CSI A500 Index, which quickly gained popularity among investors. However, the risks faced by investors still need to be effectively mitigated through futures hedging strategies. The CSI A500 Index features a distinctive constituent structure of “large-cap core + mid-cap leaders”, which is highly correlated with both the CSI 300 and CSI 500 indices, providing a practical basis for implementing a combined hedging strategy. In the absence of a stock index futures contract directly linked to the CSI A500 Index, this paper primarily constructs a dual-futures combined hedging strategy using CSI 300 Stock Index Futures (IF) and CSI 500 Stock Index Futures (IC), and examines whether this combined strategy significantly outperforms single-futures cross-hedging strategies that rely only on IF or IC. Using high-frequency 1-minute data and daily data from September 23, 2024 to December 26, 2025, we estimate and compare the optimal hedge ratios and hedging performance of three strategies (single IF, single IC, and the IF + IC combination) based on Ordinary Least Squares (OLS) and an Error Correction Model (ECM). The findings are as follows: 1) both single-futures and dual-futures hedging strategies can significantly reduce the price volatility risk of the CSI A500 Index, confirming the feasibility of futures-based hedging; 2) in most cases, the dual-futures combined strategy, especially under the ECM that incorporates long-run equilibrium relationships, delivers superior and more robust risk-hedging performance (higher VRR with lower variability) than single-futures strategies; 3) CSI 300 Stock Index Futures serve as the core hedging instrument for the A500 Index, and adding CSI 500 Stock Index Futures effectively hedges residual structural risk. These conclusions not only validate the central hypothesis, but also provide investors holding CSI A500-related assets with a more refined and robust risk management framework.
- Addae-Dapaah, K., & Abdullah, K. (2020). Cross Hedging Effectiveness of Real Estate Securities Exchange Traded Funds. Journal of Real Estate Portfolio Management, 26, 74-100. https://doi.org/10.1080/10835547.2020.1826240
- Baillie, R. T., & Myers, R. J. (1991). Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge. Journal of Applied Econometrics, 6, 109-124. https://doi.org/10.1002/jae.3950060202
- Chi, G. T., Wang, Y. G., & Yang, W. W. (2009). A Nonlinear Combined Hedging Model Using Multiple Futures for a Single Spot Asset. Forecasting, 28, 53-59.
- Johnson, L. L. (1960). The Theory of Hedging and Speculation in Commodity Futures. The Review of Economic Studies, 27, 139-151. https://doi.org/10.2307/2296076
- Li, J. Y. (2010). A Literature Review on Hedging with Stock Index Futures. Science and Technology Information Development and Economy, 20, 130-132.
- Luan, X., & Ju, R. H. (2024). Determinants of Hedging Effectiveness in China’s Agri-Cultural Futures Market. Journal of China Agricultural University, 29, 255-270.
- Wang, W. (2019). Research on Combined Hedging of Credit Bonds Using Government Bond Futures and Stock Index Futures. Shanghai Finance , No . 2, 50-54.
- Working, H. (1953). Hedging Reconsidered. Journal of Farm Economics, 35, 544-561. https://doi.org/10.2307/1233368
- Zhang, L., Cao, Y., & Wang, Q. (2020). Can Cross Hedging Reduce Risk in Agricultural Markets? Journal of Xi ’ an Jiaotong University (Social Sciences), 40, 66-72.