Proactive Structural Strategic China Shanghai-Shenzhen 300 index ETF pricing and Arbitrage Pricing Trading Volume Relationship Simulation
 Monetary, Economic, Fiscal Policy Impact on US/China  Housing, Prices, Mortgage Crisis and China Stock Index Futures
Chinese
Spline GARCH- Granger Causes, Casualty Analysis of China Macroeconomic, housing market control, RMB speculation impact on ShSZ 300 Futures  and component portfolio Prices, Risks Early Warning

 
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Warren Huang, OSA Global Strategic Management , San Francisco, CA, US, http://www.osawh.com/,  osawhh@sina.com                   wh3928@yahoo.com                                       

Fenglan Zhang,  Zhejiang University, Hangzhou, Zhejiang, China  joycezhang001@yahoo.com.cn,  

                                      Abstract

 

This paper extended Dr. .Warren Huang’s 30 years  pioneering  proactive structural interest rate, currency stocks, bond, housing , commodities asset prices valuation and bubbles bursts Operations Simulation Analysis (OSA) to R. Engles  Spline-GARCH and Granger’s Causes and Casualty analysis co-integration of dynamic macro, industrial finance time series estimation.
 
 This research  applying OSA  thousands artificial intelligence, neural net  based causes and consequences simulators , which have been developed, implemented last 20 years proactive strategic investment, markets, credit risks early warning for 30 million China, US Taiwan 15 cities 30 million institutional, private investors,  QFII, QDII, real estate, multinational oil CEO, seniors executives and 24 global central bank governors, risks management conferences.
These proactive structural simulators integrate macro, financial, industrial economic OSA  tracking, forecast years, months ahead of the emerging bull/bear markets trends of daily equities, bond, commodities, metal, energy housing, Shanghai-Shenzhen 300 index portfolio  asset prices mechanism  and causes, onset, spread, recovery, early  warning of last 20 years global banking, financial and asset bubble burst, loan default, credit crisis and its impact on real time daily  global stock indices prices. provide strategic indexing ETF arbitrage, day trading , take advantage of the mispricing ( under and overpricing of stocks ) maximize risks adjusted return.
   These models replacing current 30 year old probabilistic, statistical CAPM asset pricing, financial ratio valuations approach,  provide proactive, structural deterministic simulation of last 20 years China/global monetary, economic policy, macro economic, housing, stocks, commodities price bubbles resulted wealth gain excess liquidity,  impact on daily  interest rate, currency, stock indices
This work implemented Engles, Spline GARCH, Granger causes, and casualty co-integration, tracking  China Peoples Bank monetary, economic policy, macro-economic, housing industry price bubbles control removing RMB currency, stocks, housing wealth gain excessive hot money liquidity speculation trading volume and , inflation rate,  and US Dow Jones Index ( global investors sentiments, US mortgage crisis) impact on China stock price bubble, especially Shanghai-Shenzhen 300 index futures price. It confirm OSA analysis among the dependent,-independent variables causes and casualty analysis,
indicating low causes due to money supply growth (central banks ignoring Dr. Warren Huang warning on asset prices bubble, policy emphasize on  GDP and  CPI  ), and industrial production contribution little  to stock prices, indicating stock bubbles did not contribute to production) and highly correlated, caused wit correlation higher than 0.94) by RMB, housing prices  wealth gain excess liquidity and Dow Jones stock index, (with Hong Kong, QFII investor sentiment and housing mortgage crisis correlation constant greater than 0.98 and average error below 1.8 % in covering daily data from Jan 2005- Dec. 28, 2007. to current.
Further application of EGARCH to macroeconomic inflation,  currency, oil prices, mortgage loan default  have been achieved jointly by Dr. Huang and this author.
He warned on June 2007 Peking University Int'l Financial Engineering Risk Management Conference and Sept. 2007 on Wall Street Market Beat, Real Time Economics, Blog that US housing price continue slump into summer 2008 drag US into recession, Dow Jones, stock  markets and global stocks into bear market correction  China macro-economic, housing control raise interest rates 6 time, Banking deposit rate 16 times to 17.5 %, remove excessive housing, stock market wealth gain led to inflation up 8.7 % and China Peoples Bank credit tightening continue to cool off the coastal housing price  continue into   2008, drag China stocks into  bear market correction, with banking, housing, oil petrochemical stocks down 50- 70 %, SHSZ 300 index follow Dow Jones plunged below 11000, SHSZ index plunged from 6000 to  1500- 2100 in 2009    start rebound second half 2009 as infrastructure program into full steam.

 Keyword : Housing Bubbles,  Equities bubbles, Engles, Spline GARCH, Granger causes, casualty,   Operations Simulations Analysis,  proactive structural CAPM  ,global stock indices,  credit risk,  market risks, currency  interest rates derivatives pricing , risks hedging.   

presented to Peking University International Financial Engineering Risks Management Conference, June 10, 2007, Beijing, China  with Nobel  2003 Economic prize winner R. ENgle as keynote speaker
Nan
kai University Global corporate governance, Nov. 3, 2007, Tianjin, China

Taiwan University. International Finance Conference, De. 16, 2007,Taipei

 Dr. Warren Huang (黃華南博士) Pioneer, proactive structural dynamic global inflation, macro economy, daily financial markets interest rates, currency, stock, bond, derivatives, housing, commodities, oil asset pricing and risks valuation markets fundamentals price mechanism, accurately warned on Wall Street Journal Market beat Blog Sept.19, 2007 and Mar 5, 2008 masterclass  workshop China fund world 2008, Pudong, China  to Goldman Sach managing directors JPM, UBS and 150 China QDII/QFII fund managers that  US Fed aggressive rate cuts drag dollar to 1.53-1.65 EURO, 95- 108 Yen, economic stimulus boost consumer spending on gasoline and jet fuel summer, demand, driving gasoline , heating oil to 415, oil price to 121-145, commodity price double, will peak out as US dollar rebound follow Fed ending rate cuts cycle , can not stop sub-prime crisis spreading, regional  housing price slump 30-50 %  and credit crisis, crunch crisis continue through  2009 drag economy into 2009 repeating 1980  double dip  inflationary recession resulted trillion housing and stock market loss and US, global stock indices  and oil, commodities , metals price bubble burst bear market  50-70  % , Dow Jones test 6000- 7000  NASDAQ PLUNGE testing  1100-1250-  and high fliers (GOOG, PTR, AAPL) , IT, retail stocks facing  50-- 70 % correction,    with banking, finance, housing share price plunge 70- 90   %, dollar making to new low 85- 90 Yen,   commodity prices doubled,  and bubble burst plunge 50-70 % % in recession widening bond , CDS spread and failure in MBS/CDO, Bear Stearn 30 billion dollar MBS hedge fund and government steps rescue, Lehaman bankruptcy,  Fannie Mae, Freddie Mac AIG,bail out,  despite Fed rate cuts . , oil price plunge from 147 to 40, copper plunged from 350 to 115, corn from 600 to 350,  He also warned top global QFII management on Peking  Univ June 2007 International Financial Engineering Conference that China overheated housing, stock market wealth gain resulted inflation over 8.7 % will lead to China Peoples Bank credit tightening to remove excessive liquidity, Banking housing, stock markets follow US housing price slump, recession, bear market correction, and China 568 billion infrastructure rogam maintain 2009 GDP at 8 % and stbilize stock markets, Shanghai traded 1500- 2100 through 2008- 09  early 2009  until economy softlanding
China is suffering from housing market overheating, with 300 % gain in housing prices still  up 0.5 % , FIXED investment , consumer spending still up 22 %, first 9 month GDP still up 9.9 %, CPI drop to 2.4% in Oct.2008 % after   China peoples Bank 6  rate hikes, 16 bank deposit rat hike to 17.5 %. China need to further cut its M2 money supply growth  from 15 % to 12 %start rate cuts to support 2009 growth while next year to achieve housing price cut of 30 %, CPI to 3 %, GDP to 8 % to achieve soft landing and start of bull market stock rally