scholarly journals Are bitcoin futures contracts for hedging or speculation?

2020 ◽  
Vol 17 (3) ◽  
pp. 1-9
Author(s):  
Ramzi Nekhili
Keyword(s):  
Trading Volume ◽  
Futures Market ◽  
Futures Contracts ◽  
Risk Minimization ◽  
Full Sample ◽  
Market Participants ◽  
Hedging Effectiveness ◽  
Informed Traders ◽  
Increasing Demand ◽  
Robustness Check

The emerging interest in Bitcoin futures market has led to questions on its trading form and contribution to risk minimization. These questions are important for market participants, including hedgers and speculators. This paper addresses the possible trading motive in Bitcoin futures market in being speculation or hedging. The author first tests a model relating Bitcoin futures returns with trading volume and conditional volatility, estimated with a GJR-GARCH specification, on a full sample of daily futures prices. A robustness check is then conducted by investigating the hedging effectiveness of Bitcoin futures and the speculation-hedging ratios on individual Bitcoin futures contracts. The estimation results on Bitcoin futures contracts, spanning from December 2017 to February 2020, show a significant positive relationship between futures returns and lagged volume. The speculation-hedging measures used for Bitcoin futures contracts maturing in March, June, September, and December reveal an increasing demand for speculation. Also, the Bitcoin spot’s full-hedge and OLS-hedge strategies with Bitcoin futures provide no gain over a no-hedge strategy. The results reveal strong evidence that traders in the Bitcoin futures market are motivated by speculation rather than hedging. This further puts in evidence the existence of asymmetric information within informed traders in Bitcoin futures market, and therefore market participants would not insure their positions against Bitcoin price movements.

The Optimal Wheat Futures Hedge at the Euronext Paris from a Farmer’s Perspective

2020 ◽  
Vol 69 (1) ◽  
pp. 49-63
Author(s):  
Teresa Vollmer
Keyword(s):  
Commodity Prices ◽  
Futures Market ◽  
Futures Contracts ◽  
Risk Minimization ◽  
Price Shocks ◽  
Market Participants ◽  
Hedge Ratios ◽  
Optimal Dynamic ◽  
One Year ◽  
The Cost

Futures contracts are extensively used by commer-cial market participants to hedge commodities against the risk of adverse price fluctuations. But although farmers have faced increased volatility in commodity prices in recent years, only very few of them actively use hedging as a risk management instrument. In this article we analyze the hedging potential of the Euronext milling wheat futures market for German farmers based on the estimation of optimal static as well as optimal dynamic hedge ratios. We find that both hedging approximately one year and half a year before harvesting leads to a reduction in the variance of returns compared with unhedged portfolios. But this risk minimization is achieved at the cost of lower returns on average. In addition we find that margin calls might be one of the reasons why so few farmers hedge since they cause liquidity problems especially in marketing years with unanticipated price shocks.

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 RESEARCH ON FUTURES TREND TRADING STRATEGY BASED ON SHORT TERM CHART PATTERN

2012 ◽  
Vol 13 (5) ◽  
pp. 915-930 ◽  
Author(s):  
Saulius Masteika ◽  
Aleksandras Vytautas Rutkauskas
Keyword(s):  
Historical Data ◽  
Decision Support Tool ◽  
Technical Analysis ◽  
Futures Market ◽  
Trading Strategy ◽  
Futures Contracts ◽  
Main Task ◽  
Short Term ◽  
Support Tool ◽  
Market Participants

The main task of this paper is to examine a short term trend trading strategy in futures market based on chart pattern recognition, time series and computational analysis. Specifications of historical data for technical analysis and equations for futures profitability calculations together with position size measurement are also discussed in the paper. A contribution of this paper lies in a novel chart pattern related to fractal formation and chaos theory and its application to short term up-trend trading. Trading strategy was tested with historical data of the most active futures contracts. The results have given significantly better and stable returns compared to the change of market benchmark (CRB index). The results of experimental research related to the size of trading portfolio and trade execution slippage are also discussed in the paper. The proposed strategy can be attractive for futures market participants and be applied as a decision support tool in technical analysis.

scholarly journals INVESTIGATING THE IMPACT OF HEDGE HORIZON UPON HEDGING EFFECTIVENESS: EVIDENCE FROM NATIONAL STOCK EXCHANGE OF INDIA

2019 ◽  
Vol 18 (2) ◽  
pp. 131
Author(s):  
MANDEEP KAUR ◽  
KAPIL GUPTA
Keyword(s):  
Variance Reduction ◽  
Direct Relationship ◽  
Stock Exchange ◽  
Futures Market ◽  
Futures Contracts ◽  
Risk Averse ◽  
Risk Return ◽  
Hedging Effectiveness ◽  
The Impact ◽  
Reduction Approach

Present study attempts to investigate the impact of hedge horizon upon hedging effectiveness in Indian equity futures market by comparing hedging performance of near, next and far month futures contracts of NIFTY50 index and its 17 composite stocks. Hedging effectiveness has been measured using two approaches, namely, Variance Reduction approach and Risk-Return approach. The study finds that near month futures contracts are most effective when hedge effectiveness is measured using variance reduction approach, whereas, on the other hand, far month futures contracts are found to be most effective using risk-return approach. These results imply that for highly risk-averse investors (concerned with only minimization of risk), near month futures contracts enable effective hedging, whereas for less risk-averse investors (concerned with risk as well as return), far month futures contracts offer superior hedge effectiveness. The study also finds that coefficient of correlation between spot and futures returns is a significant factor affecting variance reduction of returns and bears direct relationship with it.

Theory and Evidence of Arbitrage Trading of Equity Futures

2010 ◽  
Vol 18 (4) ◽  
pp. 69-108
Author(s):  
Jin Yoo ◽  
Geun Beom Kim
Keyword(s):  
Stock Market ◽  
Futures Market ◽  
Futures Contracts ◽  
Spot Price ◽  
Market Participants ◽  
Arbitrage Opportunities ◽  
Time Period ◽  
Arbitrage Trading ◽  
Arbitrage Opportunity ◽  
First Time

The equity futures market was opened in May 6th, 2008 for the first time in Korea but nonetheless it has rarely been researched since. In this paper, we examine whether the market, combined with the stock market, its underlying market, has been offering any arbitrage opportunities to market participants for the period of May 6th, 2008 to March 11, 2010, focusing on the two futures contracts of Samsung Electronics and Hyundai Motors, the two most actively traded ones. Our findings are as follows. First, there have been arbitrage opportunities for the two futures in either direction. Second, the average time period for an arbitrage opportunity was two seconds so arbitrage transactions were feasible indeed. Third, nevertheless, some arbitrage transactions ended up with a loss because the estimated spot price at maturity to carry out an arbitrage trading turned out to be significantly different from the realized one. The discrepancy in these two prices causes a seemingly very safe arbitrage trading a risky one. This risky feature of an arbitrage trading has never been addressed in depth in a paper or a book before, and is a major contribution of this paper.

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

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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