Can 'Time-Invariant' Hedges Estimated from Time-Varying Hedge Models Outperform Time-Invariant Hedges Even During Period of Financial Crisis? An Empirical Investigation of Indian Futures Market

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

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

International Journal of Banking Risk and Insurance ◽

10.21863/ijbri/2015.3.2.008 ◽

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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The Swing Control of Cranes with Variable Rope Length Based on Linear Time Varying System Theory

Advanced Materials Research ◽

10.4028/www.scientific.net/amr.461.763 ◽

2012 ◽

Vol 461 ◽

pp. 763-767

Author(s):

Li Fu Wang ◽

Zhi Kong ◽

Xin Gang Wang ◽

Zhao Xia Wu

Keyword(s):

State Feedback ◽

Closed Loop ◽

Linear Time ◽

Feedback Stabilization ◽

Time Varying ◽

Closed Loop System ◽

Overhead Cranes ◽

Time Varying Systems ◽

Time Invariant ◽

Time Invariant System

In this paper, following the state-feedback stabilization for time-varying systems proposed by Wolovich, a controller is designed for the overhead cranes with a linearized parameter-varying model. The resulting closed-loop system is equivalent, via a Lyapunov transformation, to a stable time-invariant system of assigned eigenvalues. The simulation results show the validity of this method.

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

Discrete Dynamics in Nature and Society ◽

10.1155/2013/905329 ◽

2013 ◽

Vol 2013 ◽

pp. 1-8 ◽

Cited By ~ 1

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.

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