Samuelson Effect and Hedging Effectiveness in the CSI 300 Index Futures

Abstract

In this paper, we adopt the CSI 300 index futures to discuss the Samuelson effect and dissect the hedging results under both time varying volatility and futures maturities. We propose the conclusion that there is no Samuelson effect embedded in the CSI 300 Index Futures. Meanwhile, this paper infers that the optimal hedge ratios are different that is related to without and with random volatility. The maturity effect for CSI 300 index futures is also found to have a salient effect to the hedging effectiveness and the optimal hedge ratio. There is an important implication in futures hedging for this empirical study. Due to the futures hedging will relate to the time varying maturities, the maturity effect should be incorporated into consideration when hedge activity is in the process. Ignoring to deal with the effect of maturity in hedging will induce uncertain risk exposures and lead to over hedging.