THE EFFECTS OF PRICE DYNAMICS ON OPTIMAL FUTURES HEDGING

2012 ◽  
Vol 07 (02) ◽  
pp. 1250008 ◽  
Author(s):  
DONALD LIEN ◽  
KESHAB SHRESTHA
Keyword(s):  
Stock Index ◽  
Futures Contracts ◽  
Stock Index Futures ◽  
Performance Impact ◽  
Hedge Ratio ◽  
Index Futures ◽  
Futures Hedging ◽  
Long Run ◽  
Short Run ◽  
Optimal Hedge

In this paper, we analytically derive the adjustments needed for the conventional hedge ratio due to the presence of short-run and long-run dynamics. We also analytically show the performance impact of these dynamics. We apply the method discussed in the paper to eight different stock index futures contracts from seven different countries. It is found that the short-run dynamics has no effect whereas the long-run dynamics may produce significant effects on the optimal hedge ratio and the hedging performance.

scholarly journals Futures Price and Trading Volume: Evidence From Malaysia

2020 ◽  
Author(s):  
Bakri Abdul Karim ◽  
Zulkefly Abdul Karim
Keyword(s):  
Trading Volume ◽  
Stock Index ◽  
Spot Price ◽  
Stock Index Futures ◽  
Index Futures ◽  
Spot Prices ◽  
Long Run ◽  
Causality Tests ◽  
Short Run ◽  
Futures Price

This paper examines the long- and short-run dynamic causality between the futures price and trading volume in the Malaysian equity market. The data of futures price, trading volume and spot price are in daily frequency, spanning from 2006 to 2009. By using ARDL cointegration and VECM causality tests, the findings revealed the existence of long-run relationship between futures price, volume and spot prices. In addition, there exists a short-run bidirectional causality relationship running between futures return-trading volume and futures return-spot return. Thus, the stock index futures market in Malaysia is not informational efficient.  

Hedging and Optimal Hedge Ratios for International Index Futures Markets

2009 ◽  
Vol 12 (04) ◽  
pp. 593-610 ◽  
Author(s):  
Cheng-Few Lee ◽  
Kehluh Wang ◽  
Yan Long Chen
Keyword(s):  
Futures Markets ◽  
Minimum Variance ◽  
Stock Index ◽  
Stock Index Futures ◽  
Hedge Ratio ◽  
Index Futures ◽  
Static Hedging ◽  
Hedge Ratios ◽  
Optimal Hedge ◽  
Mean Variance

This empirical study utilizes four static hedging models (OLS Minimum Variance Hedge Ratio, Mean-Variance Hedge Ratio, Sharpe Hedge Ratio, and MEG Hedge Ratio) and one dynamic hedging model (bivariate GARCH Minimum Variance Hedge Ratio) to find the optimal hedge ratios for Taiwan Stock Index Futures, S&P 500 Stock Index Futures, Nikkei 225 Stock Index Futures, Hang Seng Index Futures, Singapore Straits Times Index Futures, and Korean KOSPI 200 Index Futures. The effectiveness of these ratios is also evaluated. The results indicate that the methods of conducting optimal hedging in different markets are not identical. However, the empirical results confirm that stock index futures are effective direct hedging instruments, regardless of hedging schemes or hedging horizons.

Price Discovery across the Stock Index Futures and the ETF Markets: Intra-Day Evidence from the S&P 500, Nasdaq-100 and DJIA Indices

2007 ◽  
Vol 10 (02) ◽  
pp. 215-236 ◽  
Author(s):  
Mei-Maun Hseu ◽  
Huimin Chung ◽  
Erh-Yin Sun
Keyword(s):  
Relative Price ◽  
Stock Index ◽  
Stock Index Futures ◽  
Price Leadership ◽  
Index Futures ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Macroeconomic Fundamentals ◽  
Before And After ◽  
Short Run

This paper investigates the intra-day price dynamics of the S&P 500, Nasdaq-100 and DJIA indices for the periods both before and after the Nasdaq market crash which occurred between March 2000 and March 2001. We explore the relative price efficiencies of the three indices in the spot, futures, E-mini futures and ETF markets, and find that a cointegrating relationship existed between the three indices during the period after the crash. This would seem to imply that in the aftermath of the crash, the three indices shared common macroeconomic fundamentals. We find that where there is some disturbance in the equilibrium relationship between the indices, the market which adjusts to retain equilibrium is the Nasdaq-100 market. In the long run, the S&P 500 index leads the other index contracts, a finding which is consistent with the trading cost hypothesis. Nevertheless, the Nasdaq-100 index retains short-run price leadership over both the S&P 500 and DJIA indices.

Stock index futures contracts and separability of returns

1984 ◽  
Vol 4 (1) ◽  
pp. 87-102 ◽  
Author(s):  
Anthony F. Herbst ◽  
Nicholas O. Ordway
Keyword(s):  
Stock Index ◽  
Futures Contracts ◽  
Stock Index Futures ◽  
Index Futures

Cross-Market Linkages of Taiwan Index Futures Contracts Listed on the Taiwan Futures Exchange and the Singapore Exchange

2007 ◽  
Vol 10 (04) ◽  
pp. 561-583 ◽  
Author(s):  
Hung-Gay Fung ◽  
Qingfeng "Wilson" Liu ◽  
Gyoungsin "Daniel" Park
Keyword(s):  
Stock Exchange ◽  
Trading Strategies ◽  
Stock Index ◽  
Futures Contracts ◽  
Stock Index Futures ◽  
Index Futures ◽  
Taiwan Stock Exchange ◽  
Market Linkages ◽  
Cointegration Tests ◽  
Causality Tests

Cointegration tests and ex ante trading rules are applied to study cross-market linkages between the Taiwan Index futures contracts listed on the Singapore Exchange and the Taiwan Stock Exchange Capitalization-weighted Stock Index futures contracts listed on the Taiwan Futures Exchange. The exchange rate-adjusted returns of the two futures series do not differ significantly in mean but in variances, and show significant mean-reverting tendencies between them. Our trading strategies are able to generate statistically significant, if economically insignificant, profits, while our Granger causality tests demonstrate that information flows primarily from the Singapore market to the Taiwan market, a result confirming other research.

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