Hedging and effectiveness of Indian currency futures market

2020 ◽  
Vol 14 (5) ◽  
pp. 581-597
Author(s):  
Varuna Kharbanda ◽  
Archana Singh
Keyword(s):  
Dynamic Model ◽  
Quantitative Methods ◽  
Accounting Standards ◽  
Futures Market ◽  
Least Square ◽  
Multivariate Garch ◽  
Content Type ◽  
Currency Futures ◽  
Hedging Effectiveness ◽  
Method Of Evaluation

Purpose The purpose of this paper is to measure the effectiveness of the hedging with futures currency contracts. Measuring the effectiveness of hedging has become mandatory for Indian companies as the new Indian accounting standards, Ind-AS, specify that the effectiveness of hedges taken by the companies should be evaluated using quantitative methods but leaves it to the company to choose a method of evaluation. Design/methodology/approach The paper compares three models for evaluating the effectiveness of hedge – ordinary least square (OLS), vector error correction model (VECM) and dynamic conditional correlation multivariate GARCH (DCC-MGARCH) model. The OLS and VECM are the static models, whereas DCC-MGARCH is a dynamic model. Findings The overall results of the study show that dynamic model (DCC-MGARCH) is a better model for calculating the hedge effectiveness as it outperforms OLS and VECM models. Practical implications The new Indian accounting standards (Ind-AS) mandates the calculation of hedge effectiveness. The results of this study are useful for the treasurers in identifying appropriate method for evaluation of hedge effectiveness. Similarly, policymakers and auditors are benefitted as the study provides clarity on different methods of evaluation of hedging effectiveness. Originality/value Many previous studies have evaluated the efficiency of the Indian currency futures market, but with rising importance of hedging in the Indian companies, Reserve Bank of India’s initiatives and encouragement for the use of futures for hedging the currency risk and now the mandatory accounting requirement for measuring hedging effectiveness, it has become more relevant to evaluate the effectiveness of hedge. To the authors’ best knowledge, this is one of the first few papers which evaluate the effectiveness of the currency future hedging.

Futures market efficiency and effectiveness of hedge in Indian currency market

2018 ◽  
Vol 13 (6) ◽  
pp. 2001-2027 ◽  
Author(s):  
Varuna Kharbanda ◽  
Archana Singh
Keyword(s):  
Dynamic Models ◽  
Futures Market ◽  
Futures Contracts ◽  
Conditional Correlation ◽  
Content Type ◽  
Currency Market ◽  
Currency Futures ◽  
Hedging Effectiveness ◽  
Static Models ◽  
Method Of Evaluation

Purpose Corporate treasurers manage the currency risk of their organization by hedging through futures contracts. The purpose of this paper is to evaluate the effectiveness of hedging by US currency futures contracts by taking into account the efficiency of the currency market. Design/methodology/approach The static models for calculating hedge ratio are as popular as dynamic models. But the main disadvantage with the static models is that they do not consider important properties of time series like autocorrelation and heteroskedasticity of the residuals and also ignore the cointegration of the market variables which indicate short-run market disequilibrium. The present study, therefore, measures the hedging effectiveness in the US currency futures market using two dynamic models – constant conditional correlation multivariate generalized ARCH (CCC-MGARCH) and dynamic conditional correlation multivariate GARCH (DCC-MGARCH). Findings The study finds that both the dynamic models used in the study provide similar results. The relative comparison of CCC-MGARCH and DCC-MGARCH models shows that CCC-MGARCH provides better hedging effectiveness result, and thus, should be preferred over the other model. Practical implications The findings of the study are important for the company treasurers since the new updated Indian accounting standards (Ind-AS), applicable from the financial year 2016–2017, make it mandatory for the companies to evaluate the effectiveness of hedges. These standards do not specify a quantitative method of evaluation but provide the flexibility to the companies in choosing an appropriate method which justifies their risk management objective. These results are also useful for the policy makers as they can specify and list the appropriate methods for evaluating the hedge effectiveness in the currency market. Originality/value Majorly, the studies on Indian financial market limit themselves to either examining the efficiency of that market or to evaluate the effectiveness of the hedges undertaken. Moreover, most of such works focus on the stock market or the commodity market in India. This is one of the first studies which bring together the concepts of efficiency of the market and effectiveness of the hedges in the Indian currency futures market.

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

Incentive mechanisms and hedging effectiveness – an experimental study

2018 ◽  
Vol 8 (3) ◽  
pp. 332-352 ◽  
Author(s):  
Lu Zhang ◽  
Difang Wan ◽  
Wenhu Wang ◽  
Chen Shang ◽  
Fang Wan
Keyword(s):  
Behavioral Finance ◽  
Design Theory ◽  
Futures Market ◽  
Incentive Mechanisms ◽  
Content Type ◽  
Hedging Effectiveness ◽  
Exploratory Experiment ◽  
Long Term Impact ◽  
Brokerage Firms

PurposeThe purpose of this paper is to analyze the role of four different incentives in improving hedging effectiveness and propose an alternative regulatory mechanism for China’s futures market.Design/methodology/approachThe research method that this study uses is a laboratory experiment, and this study follows the basic norms of experimental research. In addition, this paper designs and conducts a game experiment between hedgers and futures brokerage firms (FBFs) under different incentive mechanisms.FindingsBy analyzing the experimental data, it is found that compared with other incentive mechanisms, hedgers’ willingness to hedge and FBFs’ regulatory intention are both significantly higher for the dynamic linkage updating mechanism, indicating that hedgers have a stronger willingness to follow their hedging plan, and FBFs are more responsible for their regulatory behaviors. Additionally, the dynamic linkage updating mechanism has a long-term impact on effective hedging in the futures market.Research limitations/implicationsThe findings suggest that the dynamic linkage updating mechanism is beneficial for effectively restricting both hedgers’ over-speculation and FBFs’ regulatory slack and improving the hedging efficiency of the futures market.Practical implicationsTo solve the problem of inefficient hedging in China’s futures market, i.e., hedgers’ over-speculation and FBFs’ passive collusion with hedgers, the regulators of China’s futures market should reform the existing incentives and adopt a dynamic linkage updating mechanism to encourage all the participants to actively improve hedging effectiveness.Originality/valueThis paper analyzes and verifies, for the first time, the role of the dynamic linkage updating mechanism in the investing behaviors of hedgers and the regulatory behaviors of future brokerage firms. The futures market experiment that was designed and used in this study is a pioneering and exploratory experiment that applies game theory and mechanism design theory to the field of behavioral finance.

The influence of Islamic attributes on tourist satisfaction with pull motivation as an intervening variables

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hilda Monoarfa ◽  
Agus Rahayu ◽  
Fitranty Adirestuty ◽  
Rizuwan Abu Karim ◽  
Azlin Zanariah Bahtar ◽  
...  
Keyword(s):  
Structural Equation ◽  
Quantitative Methods ◽  
Small Sample ◽  
Partial Least Square ◽  
Least Square ◽  
Equation Modeling ◽  
Content Type ◽  
Tourist Attractions ◽  
Tourist Satisfaction ◽  
The Impact

Purpose The purpose of this study is to find out the level of influence of Islamic attributes and pull motivation to the satisfaction of Muslim tourists visiting Indonesia. Furthermore, this study may reveal where variables have a strong influence on the variable satisfaction of Muslim tourists. In addition, this study also wanted to know if Islamic attributes can influence the satisfaction of Muslim tourists with pull motivation as a moderating variable. Design/methodology/approach Using quantitative methods, this study analyzed the results of questionnaires that have been distributed to 200 Muslim tourist respondents who have visited Indonesia. To declare the hypotheses, the collected data were analyzed with structural equation modeling-partial least square using SmartPLS application version 3.2.7. Findings From this study, it was discovered that pull motivation has more effect on the satisfaction of Muslim tourists visiting Indonesia. Other results showed that both Islamic attributes and pull motivation simultaneously affect the satisfaction of Muslim tourists. Furthermore, Islamic attributes can affect pull motivation and pull motivation can also become an intermediary variable in bridging the impact of Islamic attributes on the satisfaction of Muslim tourists. Research limitations/implications The limitations of this study include the relatively small sample used and not yet taking foreign tourists as respondents. Besides that, you can also add several variables to complement this research in the future either as an intervening variable or a mediator variable. Practical implications To increase the satisfaction of Muslim tourists traveling to Indonesia, policymakers in Indonesia must further improve the facilities of the pull motivation aspect such as the cleanliness of tourist attractions, exotic locations and hygienic shopping centers. In addition, aspects of Islamic attributes must also be updated, such as aspects of adequate worship facilities and tourist attractions that apply the concept of halal for Muslims. Originality/value The originality of this study on the pull motivation variable as an intervening variable and adding the Islamic attribute variable in the case of Muslim tourist satisfaction.

The relationship between trading volume and exchange rate volatility: linear or nonlinear?

2019 ◽  
Vol 15 (1) ◽  
pp. 19-38
Author(s):  
Satish Kumar
Keyword(s):  
Granger Causality ◽  
Trading Volume ◽  
Causal Relation ◽  
Futures Market ◽  
Content Type ◽  
Currency Futures ◽  
Information Hypothesis ◽  
Hedging Strategies ◽  
Linear And Nonlinear ◽  
Mixture Of Distribution Hypothesis

PurposeThe purpose of this paper is to examine the linear and nonlinear relations between returns volatility and trading volume for the Indian currency futures market.Design/methodology/approachTo examine the contemporaneous relation between returns volatility and volume, the author uses the generalized method of moment estimator. For the linear causal relation, the author makes use of Granger (1969) bivariate vector autoregression model. The author tests for nonlinear Granger causality between returns volatility and trading volume based on a modified version of the Baek and Brock (1992) nonparametric technique developed by Hiemstra and Jones (1994).FindingsThe results indicate a negative contemporaneous relation between returns volatility and trading volume; therefore, the mixture of distribution hypothesis is not supported. The results of both linear and nonlinear Granger causality between futures returns volatility and trading volume indicate a significant bidirectional relation between the two variables lending support to the sequential arrival of information hypothesis. The results are robust to divergence of opinions as proxied by open interest.Practical implicationsThe findings of this paper are important for the participants in the market and regulators. The participants in the market require alternatives to diversify their risk. The significant causal relation between returns volatility and trading volume implies that trading volume helps predict the futures prices and should lead to creation of more reliable hedging strategies for investment purposes. Furthermore, it may interest the regulators who need to decide upon the appropriateness of their policies in the currency futures market.Originality/valueTo the best of the author’s knowledge, there is no study that investigates the forecast ability of trading volume to futures returns volatility in an emerging currency futures market. Given that currency futures market is one of the largest markets in the world, and Indian rupee has seen wide fluctuations in the recent years, it seems exciting to explore the price–volume relation in the Indian currency futures market.

Effects of implementation of International Public Sector Accounting Standards on Nigeria’s financial reporting quality

2020 ◽  
Vol 33 (2/3) ◽  
pp. 323-338 ◽  
Author(s):  
Saheed Adekunle Muraina ◽  
Kabiru Isa Dandago
Keyword(s):  
Public Sector ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Reporting Quality ◽  
Partial Least Square ◽  
Least Square ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Public Sector Accounting

Purpose The purpose of this paper is to examine the effects of the implementation of the International Public Sector Accounting Standards (IPSAS) on Nigeria’s financial reporting quality. Design/methodology/approach The study employed a survey research design to determine the effects of the implementation of the IPSAS on Nigeria’s financial reporting quality. Partial Least Square 3(SmartPLS 3) technique of analysis was applied to achieve the research objective. Findings The study found that accountability positively and significantly affects the quality of financial reporting in Nigeria. Specifically, IPSAS has improved the level of accountability, which in turn improved Nigeria’s financial reporting quality. Research limitations The study only explored two explanatory variables whereas other variables such as transparency, corruption minimization, comparability and faithful representation were not considered in this study. It is, therefore, recommended that further studies could expand the scope to cover some other variables not included in this paper. Practical implications IPSAS-Accrual has engendered the Nigerian Government to launch the Asset Tracking and Management Project (ATMProject) in order to easily track its assets for the purpose of accountability. Thus, accountability was discovered in this study to be the most essential factor to enhance the quality of financial reporting using accrual-based IPSAS in Nigeria. Social implications Accountability will impact positively on the lives of Nigerians in relation to the application of public funds to impact on the lives of the masses. Originality/value The statistical significance of accountability found in this study, using partial least square technique of data analysis, will further enhance financial integrity in the country.

scholarly journals Efektivitas Hedging Kontrak Futures Komoditi Emas Dengan OLEIN

2011 ◽  
Vol 4 (2) ◽  
Author(s):  
Fitri Ismiyanti ◽  
Hendra Ima Sasmita
Keyword(s):  
Systematic Risk ◽  
Spot Market ◽  
Futures Market ◽  
Least Square ◽  
Hedging Strategy ◽  
Hedge Ratio ◽  
Ordinary Least Square ◽  
Futures Contract ◽  
Hedging Effectiveness ◽  
Cross Hedging

This research is for comparing hedging effectiveness in gold and olein commodity. Using Ordinary Least Square (OLS) model to determine the hedge ratio, it’s found that olein hedge ratio is bigger than gold hedge ratio. The value of olein hedge ratio is bigger than gold hedge ratio indicate that to eliminate loss in olein spot market is needed a lot of futures contract as compared to eliminate loss in gold spot market. However, independent t-test to return hedged variance both commodity show there is no different variance. This mean the return hedged variance of gold commodity has the same value with olein return hedged variance. So, handling the systematic risk of olein hedger have the same as of gold hedger handling. With the result that, if doing hedging strategy and there is no same instrument to be hedged in futures market, so hedger may considering to use cross hedging strategy, but previously determined first the optimum hedge ratio, because the optimum hedge ratio can reduce the variance return caused by market risk (systematic risk).

Halal-labeled food shopping behavior: the role of spirituality, image, trust, and satisfaction

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Muflih ◽  
Juliana Juliana
Keyword(s):  
Quantitative Methods ◽  
Health And Safety ◽  
Influential Factors ◽  
Partial Least Square ◽  
Least Square ◽  
Shopping Behavior ◽  
Content Type ◽  
Safety Standards ◽  
Food Shopping ◽  
Halal Food

Purpose This paper aims to estimate the influence of spirituality on halal-labeled food shopping behavior both directly and through the mediating roles of image, trust and satisfaction. Design/methodology/approach Using quantitative methods, this research analyzed the responses to questionnaires distributed to 212 respondents from Bandung, Indonesia. To prove the hypotheses, the collected data were analyzed by partial least square (SEM-PLS) using SmartPLS. Findings This research shows that the direct relationship between spirituality and halal-labeled food shopping behavior was insignificant. However, the relationship between spirituality and halal food shopping behavior became indirectly significant through the mediating roles of image, trust and satisfaction. This finding confirms that image, trust and satisfaction are influential factors in the increased shopping behavior of consumers who choose halal-labeled foods. Practical implications To increase the shopping behavior of Muslims for halal-labeled food, halal food companies need to expand the halal label campaign to electronic and social media. Besides, halal food companies need to develop the accountability of food quality to ensure that the halal food products meet the health and safety standards expected by the public. Spiritual education is also required to harmonize the love for God and the food choices approved by God. Originality/value This study is the first in testing the influence of spirituality on halal-labeled food shopping behavior both directly and through the mediating roles of image, trust and satisfaction. It successfully revealed the strengths and weaknesses of spirituality in influencing the behavior of halal food shopping.

Revisiting the price-volume relationship: a cross-currency evidence

2017 ◽  
Vol 13 (1) ◽  
pp. 91-104 ◽  
Author(s):  
Satish Kumar
Keyword(s):  
Granger Causality ◽  
Trading Volume ◽  
Generalized Method Of Moments ◽  
Futures Market ◽  
Content Type ◽  
Currency Futures ◽  
Hedging Strategies ◽  
Volume Relationship ◽  
Volume Relation ◽  
Mixture Of Distribution Hypothesis

Purpose The purpose of this paper is to examine the contemporaneous and causal relationship between returns (volatility) and trading volume in the Indian currency futures market for selected currency pairs; USD-INR, EUR-INR, GBP-INR and JPY-INR, from August 2008 to December 2014. Design/methodology/approach The data for all the currency futures series has been taken from National Stock Exchange of India Limited which represents the daily settlement prices along with trading volume. The contemporaneous returns-volume relation is tested using the generalized method of moments, and Granger-causality framework impulse response function is used to test the predictive ability of returns (volatility) and volume for each other. Findings The author reports a positive contemporaneous relationship between futures returns and trading volume which persists even after controlling for heteroskedasticity providing support to mixture of distribution hypothesis. The results show a unidirectional Granger causality from futures returns to volume. However, there is a significant bidirectional Granger causality between returns volatility and volume lending support to sequential arrival of information hypothesis. Next, the results for cross-currencies show significant influence of US dollar on the volume and returns of all other currencies. Overall, the author suggests that the short- to medium-term movements in the currency markets are dominated by market microstructure and not by fundamentals. Practical implications The findings of this paper are very important for the participants in the market and regulators. The participants in the market require alternatives to diversify their risk. The significant relationship between futures returns (volatility) and trading volume implies that the current trading volume help predict the futures prices and should lead to creation of more reliable hedging strategies for investment purposes. Further, it may interest the regulators who need to decide upon the appropriateness of their policies in the currency futures market. Based on returns-volume relation, they need to set forth market restrictions such as daily price movement and position limits. Originality/value To the best of the knowledge, no study has yet investigated the forecast ability of trading volume to price changes and their volatility in the Indian currency futures market. Given that currency futures market is one of the largest markets in the world, and Indian rupee has seen wide fluctuations in the recent years, it seems exciting to explore the price-volume relationship in the Indian currency futures market.

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