Cost-benefit analysis of trading strategies in the stock index futures market
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RESEARCH
Financial Innovation
Open Access
Cost-benefit analysis of trading strategies in the stock index futures market Xiong Xiong1, Yian Cui2* , Xiaocong Yan1, Jun Liu1 and Shaoyi He3 * Correspondence: [email protected] 2 Research Institute, Shenzhen Stock Exchange, Shenzhen 518038, China Full list of author information is available at the end of the article
Abstract With the introduction of many derivatives into the capital market, including stock index futures, the trading strategies in financial markets have been gradually enriched. However, there is still no theoretical model that can determine whether these strategies are effective, what the risks are, and how costly the strategies are. We built an agent-based cross-market platform that includes five stocks and one stock index future, and constructed an evaluation system for stock index futures trading strategies. The evaluation system includes four dimensions: effectiveness, risk, occupation of capital, and impact cost. The results show that the informed strategy performs well in all aspects. The risk of the technical strategy is relatively higher than that of the other strategies. Moreover, occupation of capital and impact cost are both higher for the arbitrage strategy. Finally, the wealth of noise traders is almost lost. Keywords: Trading strategy, Stock index futures, Agent-based model, Cost-benefit analysis
Introduction China Shanghai–Shenzhen 300 Stock Index Futures (CSI 300 Stock Index Futures) contracts began trading in April 2010. The trading strategies in financial markets have been gradually enriched with the introduction of stock index futures. In the capital market, trading strategies can be generally divided into informed, technical, and noise strategies. In addition, stock index futures have unique trading strategies, such as hedging and arbitrage. For investors, different trading strategies produce different benefits and costs. At the same time, the behavior of investors also affects the market index and overall market operation, which in turn influence the benefits, costs, and risks associated with trading strategies. Therefore, analyzing the different trading strategies in the stock index futures market is of great significance. Following Xu et al. (2014), we built an agent-based cross-market model that includes five stocks and one stock index future. Based on this artificial stock market, we constructed a four-dimensional evaluation system for trading strategies in the stock index futures market. Then, we simulated a series of experiments to analyze the costs, benefits, and risks of different trading strategies. The experimental results show that the © The Author(s). 2020 Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images o
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