scholarly journals Optimal hedge ratios and hedging effectiveness: An analysis of the Turkish futures market

2021 ◽  
Author(s):  
Goknur Buyukkara ◽  
C. Coskun Kucukozmen ◽  
E. Tolga Uysal
Keyword(s):  
Futures Market ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Optimal Hedge

Optimal Hedge Ratio and Hedging Effectiveness in Stock Futures Market: Evidence from National Stock Exchange, India

2019 ◽  
Vol 118 (3) ◽  
pp. 137-152
Author(s):  
A. Shanthi ◽  
R. Thamilselvan
Keyword(s):  
Banking Sector ◽  
Stock Exchange ◽  
Research Work ◽  
Futures Market ◽  
Least Square ◽  
Time Varying ◽  
Hedge Ratio ◽  
Hedging Effectiveness ◽  
Out Of Sample ◽  
Optimal Hedge

The major objective of the study is to examine the performance of optimal hedge ratio and hedging effectiveness in stock futures market in National Stock Exchange, India by estimating the following econometric models like Ordinary Least Square (OLS), Vector Error Correction Model (VECM) and time varying Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) model by evaluating in sample observation and out of sample observations for the period spanning from 1st January 2011 till 31st March 2018 by accommodating sixteen stock futures retrieved through www.nseindia.com by considering banking sector of Indian economy. The findings of the study indicate both the in sample and out of sample hedging performances suggest the various strategies obtained through the time varying optimal hedge ratio, which minimizes the conditional variance performs better than the employed alterative models for most of the underlying stock futures contracts in select banking sectors in India. Moreover, the study also envisage about the model selection criteria is most important for appropriate hedge ratio through risk averse investors. Finally, the research work is also in line with the previous attempts Myers (1991), Baillie and Myers (1991) and Park and Switzer (1995a, 1995b) made in the US markets

scholarly journals Empirical Evidence on Time-Varying Hedging Effectiveness of Emissions Allowances under Departures from the Cost-of-Carry Theory

2013 ◽  
Vol 2013 ◽  
pp. 1-8 ◽  
Author(s):  
Kai Chang
Keyword(s):  
Futures Market ◽  
Time Varying ◽  
Conditional Volatility ◽  
Conditional Correlation ◽  
Spot Prices ◽  
Market Participants ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Cost Of Carry ◽  
The Cost

Under departures from the cost-of-carry theory, traded spot prices and conditional volatility disturbed from futures market have significant impacts on futures price of emissions allowances, and then we propose time-varying hedge ratios and hedging effectiveness estimation using ECM-GARCH model. Our empirical results show that conditional variance, conditional covariance, and their correlation between between spot and futures prices exhibit time-varying trends. Conditional volatility of spot prices, conditional volatility disturbed from futures market, and conditional correlation of market noises implied from spot and futures markets have significant effects on time-varying hedge ratios and hedging effectiveness. In the immature emissions allowances market, market participants optimize portfolio sizes between spot and futures assets using historical market information and then achieve higher risk reduction of assets portfolio revenues; accordingly, we can obtain better hedging effectiveness through time-varying hedge ratios with departures from the cost-of-carry theory.

scholarly journals HOW EFFECTIVE IS FUTURES AS AN INSTRUMENT OF HEDGING AGAINST PRICE RISK? -A STUDY BASED ON SPOT AND FUTURE PRICES OF GOLD

2016 ◽  
Vol 4 (9) ◽  
pp. 143-150
Author(s):  
Shafeeque Muhammad ◽  
Thomachan
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Price Risk ◽  
Time Varying ◽  
Risk Hedging ◽  
Hedging Effectiveness ◽  
Cash Market ◽  
Hedge Ratios ◽  
Opposite Position

This paper examines the role of commodity futures market as an instrument of hedging against price risk. Hedging is the practice of offsetting the price risk in a cash market by taking an opposite position in the futures market. By taking a position in the futures market, which is opposite to the position held in the spot market, the producer can offset the losses in the latter with the gains in the former. Both static and time varying hedge ratios have been calculated using VECM-MGARCH model. Variance of return from hedge portfolio has been found to be low. Further hedging effectiveness has been observed to be around 12%.

scholarly journals Optimal Hedging Strategies for Natural Gas

2020 ◽  
Vol 12 (8) ◽  
pp. 1
Author(s):  
Changfeng Zhou ◽  
Huan Cai
Keyword(s):  
Natural Gas ◽  
Crude Oil ◽  
Financial Risk ◽  
Natural Gas Market ◽  
Hedging Strategies ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Asset Portfolio ◽  
Gas Market ◽  
Optimal Hedge

This study examines the optimal hedge performance between natural gas market and crude oil, ECO, gold and US-bonds markets. To calculate optimal hedge ratios and hedging effectiveness, we apply several multivariate volatility models, namely CCC, DCC, cDCC and bayesDCC. The empirical results show that crude oil is the best asset to hedge natural gas followed by gold and ECO. This is a new result relative to the existing literature on natural gas prices. Additionally, we find that the bayesDCC model has the best performance on optimal hedge ratios (OHRs) calculation in terms of hedging effectiveness. Our findings will hold important financial risk management implications and asset portfolio for those invest in natural gas market.

Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures

2017 ◽  
Vol 6 (2) ◽  
pp. 108-131 ◽  
Author(s):  
Gurmeet Singh
Keyword(s):  
Stock Exchange ◽  
Futures Market ◽  
Minimum Variance ◽  
Econometric Models ◽  
Sample Period ◽  
Hedge Ratio ◽  
Index Futures ◽  
Hedging Effectiveness ◽  
Egarch Model ◽  
Optimal Hedge

This study attempts to study and suggest an optimal hedge ratio to Indian investors and traders by examining the three main indices of National Stock Exchange of India (NSE), namely, NIFTY, Bank NIFTY, and IT NIFTY, over the sample period from January 2011 to December 2015. The present study estimated the hedge ratio through six econometric models, namely, OLS, GARCH, EGARCH, TARCH, VAR, and VECM, in the minimum variance hedge ratio framework as suggested by Ederington (1979). The findings of the present study confirm the theoretical properties of Indian cash and futures market and suggest that the optimal hedge ratio estimated through EGARCH model was lowest for the NIFTY and Bank NIFTY, and that for IT NIFTY, the OLS model shows the lowest optimal hedge ratio as compared to that estimated through other models.

scholarly journals The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in India

2011 ◽  
Vol 6 (1) ◽  
pp. 111-123 ◽  
Author(s):  
Kailash Pradhan
Keyword(s):  
Least Square ◽  
Stock Index ◽  
Stock Index Futures ◽  
Vector Error Correction ◽  
Index Futures ◽  
Portfolio Returns ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Out Of Sample ◽  
Optimal Hedge

The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in IndiaThis study evaluates optimal hedge ratios and the hedging effectiveness of stock index futures. The optimal hedge ratios are estimated from the ordinary least square (OLS) regression model, the vector autoregression model (VAR), the vector error correction model (VECM) and multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) models such as VAR-GARCH and VEC-GARCH using the S&P CNX Nifty index and its futures index. Hedging effectiveness is measured in terms of within sample and out of sample risk-return trade-off at various forecasting horizons. The analysis found that the VEC-GARCH time varying hedge ratio provides the greatest portfolio risk reduction and generates the highest portfolio returns.

Examining the Hedging Effectiveness of Futures Contracts over Pre and Post Financial Crisis Period: Evidence from National Stock Exchange of India

2015 ◽  
Vol 3 (2) ◽  
Author(s):  
Kapil Gupta ◽  
Mandeep Kaur
Keyword(s):  
Financial Crisis ◽  
Stock Exchange ◽  
Futures Contracts ◽  
Price Risk ◽  
Hedge Ratio ◽  
Crisis Period ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Time Invariant

Present study examines the efficiency of futures contracts in hedging unwanted price risk over highly volatile period i.e. June 2000 - December 2007 and January 2008 – June 2014, pre and post-financial crisis period, by using S&PC NXNIFTY, CNXIT and BANKNIFTY for near month futures contracts. The hedge ratios have been estimated by using five methods namely Ederingtons Model, ARMA-OLS, GARCH (p,q), EGARCH (p,q) and TGARCH (p,q). The study finds that hedging effectiveness increased during post crisis period for S&PC NXNIFTY and BANKNIFTY. However, for CNXIT hedging effectiveness was better during pre-crisis period than post crisis. The study also finds that time-invariant hedge ratio is more efficient than time-variant hedge ratio.

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