Research on Overconfidence Influence of Stock Index Futures Hedge

Stock index futures plays a vital role in the development process of stock market. It can be used to hedge market systematic risk caused by spot price fluctuations. The realization of hedge function is based on the theory of the high correlation between stock index futures and spot markets. The key factor for a successful hedge is to identify and fully understand the basis risk. The basis reflects the distance between spot and futures markets. It is influenced by many facts such as trading mechanism, transaction system, traders, holding cost and the market manipulation behavior, market supply and demand, etc. In this paper, we focus on the basis risk caused by the different overconfidence level in spot and futures markets. Then we analyze overconfidence influence of stock index futures hedge.