scholarly journals Dynamic Conditional Bias-Adjusted Carry Cost Rate Futures Hedge Ratios

2022 ◽  
Vol 15 (1) ◽  
pp. 12
Author(s):  
Dean Leistikow ◽  
Yi Tang ◽  
Wei Zhang
Keyword(s):  
The Other ◽  
Conditional Correlation ◽  
Hedge Ratio ◽  
Cost Rate ◽  
Dynamic Conditional Correlation ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Rolling Window ◽  
Futures Price ◽  
Asset Classes

This paper proposes new dynamic conditional futures hedge ratios and compares their hedging performances along with those of common benchmark hedge ratios across three broad asset classes. Three of the hedge ratios are based on the upward-biased carry cost rate hedge ratio, where each is augmented in a different bias-mitigating way. The carry cost rate hedge ratio augmented with the dynamic conditional correlation between spot and futures price changes generally: (1) provides the highest hedging effectiveness and (2) has a statistically significantly higher hedging effectiveness than the other hedge ratios across assets, sub-periods, and rolling window sizes.

scholarly journals Hedging ship price risk using freight derivatives in the drybulk market

2019 ◽  
Vol 5 (1) ◽  
Author(s):  
Roar Adland ◽  
Haakon Ameln ◽  
Eirik A. Børnes
Keyword(s):  
Least Squares ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Price Risk ◽  
Conditional Correlation ◽  
Hedge Ratio ◽  
Future Earnings ◽  
Dynamic Conditional Correlation ◽  
Hedge Ratios ◽  
Static Hedge

AbstractWe show that a fixed-maturity time-weighted Forward Freight Agreement (FFA) portfolio should be used to proxy the expected future earnings of a vessel. We investigate the corresponding hedging efficiency when using a portfolio of FFA prices to hedge ship price risk of both static hedge ratios calculated using Ordinary Least Squares estimation and the dynamic hedge ratios generated from a dynamic conditional correlation GARCH (1,1) model. We find that the hedging efficiency is greater for newer vessels than older vessels and that the static hedge ratio outperforms the dynamic hedge ratio. Our work is an extension of earlier empirical work which has only considered the hedging efficiency of varying-maturity calendar FFA contracts for a single vessel age.

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.

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.

HEDGING EFFECTIVENESS OF CROSS-LISTED NIFTY INDEX FUTURES

2019 ◽  
Vol 19 (02) ◽  
pp. 1950011
Author(s):  
K. KIRAN KUMAR ◽  
SHREYA BOSE
Keyword(s):  
Variance Reduction ◽  
Stock Exchange ◽  
Conditional Correlation ◽  
Index Futures ◽  
Hedging Strategies ◽  
Hedging Effectiveness ◽  
Maximum Variance ◽  
Daily Data ◽  
Hedge Ratios ◽  
Autoregressive Conditional Heteroscedasticity

This paper investigates the hedging effectiveness of cross-listed Nifty Index futures and compares the performance of constant and dynamic optimal hedging strategies. We use daily data of Nifty index traded on the National Stock Exchange (NSE), India and cross-listed Nifty futures traded on the Singapore Stock Exchange (SGX) for a period of six years from July 15, 2010 to July 15, 2016. Various competing forms of Multivariate Generalised Autoregressive Conditional Heteroscedasticity (MGARCH) models, such as Constant Conditional Correlation (CCC) and Dynamic Conditional Correlation (DCC), have been employed to capture the time-varying volatility. The results clearly depict that dynamic hedge ratios outperform traditional constant hedge ratios with the DCC–GARCH model being the most efficient with maximum variance reduction from the unhedged portfolio.

scholarly journals Carry Cost Rate Regimes and Futures Hedge Ratio Variation

2019 ◽  
Vol 12 (2) ◽  
pp. 78 ◽  
Author(s):  
Dean Leistikow ◽  
Ren-Raw Chen
Keyword(s):  
Hedge Ratio ◽  
Bias Adjustment ◽  
Cost Rate ◽  
Ratio Variation ◽  
Hedge Ratios ◽  
Ex Ante ◽  
Hedging Performance

This paper tests whether the traditional futures hedge ratio (hT) and the carry cost rate futures hedge ratio (hc) vary in accordance with the Sercu and Wu (2000) and Leistikow et al. (2019) “hc” theory. It does so, both within and across high and low spot asset carry cost rate (c) regimes. The high and low c regimes are specified by asset across time and across currency denominations. The findings are consistent with the theory. Within and across c regimes, hT is inefficient and hc is biased. Across c regimes, hc’s Bias Adjustment Multiplier (BAM) does not vary significantly. Even though hc’s bias-adjusted variant’s BAM is restricted to old data that is from a different c regime, the hedging performance of hc and its bias-adjusted variant (=hc × BAM), are superior to that for hT. Variation in c may account for the hT variation noted in the literature and variation in c should be incorporated into ex ante hedge ratios.

scholarly journals Dynamic Connectedness and Portfolio Diversification during the Coronavirus Disease 2019 Pandemic: Evidence from the Cryptocurrency Market

2021 ◽  
Author(s):  
Samia Nasreen ◽  
Aviral Kumar Tiwari ◽  
Seong-Min Yoon
Keyword(s):  
Portfolio Diversification ◽  
Sample Period ◽  
Safe Haven ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Hedging Effectiveness ◽  
High Degree

This paper examines interlinkages and hedging opportunities between nine major cryptocurrencies for the period between 30 September 2015 and 4 June 2020, which notably includes the coronavirus disease 2019 (COVID-19) outbreak lasting from early 2020 through the end of the sample period. The results of dynamic conditional correlation (DCC) analysis using a minimum connectedness approach show a high degree of correlation between cryptocurrencies throughout the sample period. However, the correlations reach their minimum values during the COVID-19 pandemic, which indicates that cryptocurrencies acted as a hedge or safe haven during the stressful period of the COVID-19 pandemic. The weight of cryptocurrencies was significantly reduced and their hedging effectiveness varied greatly during the pandemic, which indicates that investors’ preferences changed during the COVID-19 period.

Hedging Efficiency of Indian Commodity Futures

Paradigm ◽  
2017 ◽  
Vol 21 (1) ◽  
pp. 1-20 ◽  
Author(s):  
Shashi Gupta ◽  
Himanshu Choudhary ◽  
D.R. Agarwal
Keyword(s):  
Natural Gas ◽  
Crude Oil ◽  
Least Square ◽  
Castor Seed ◽  
Hedge Ratio ◽  
Vector Autoregressive ◽  
Vector Error Correction ◽  
Hedging Effectiveness ◽  
Gold Silver ◽  
Hedge Ratios

This article examines the hedge ratio and hedging effectiveness in agricultural (castor seed, guar seed) and non-agricultural (copper, nickel, gold, silver, natural gas and crude oil) commodities traded in National Commodity and Derivative Exchange (NCDEX) and Multi Commodity Exchange (MCX), respectively. Constant and dynamic hedge ratios are estimated by using ordinary least square (OLS), vector autoregression (VAR), vector error correction model (VECM) and vector autoregressive-multivariate generalized autoregressive conditional heteroskedasticity model (VAR-MGARCH). The results of constant as well as dynamic hedge ratios reveal that the Indian futures market provides higher hedging effectiveness in case of precious metal (65–75 per cent) compared to industrial metal and energy commodities (less than 50 per cent). Hedging effectiveness for castor seed and natural gas is even lower than 10 per cent. This study concluded that VECM and VAR-MGARCH both are providing higher hedging although VECM is providing the highest hedge ratio. It has been found that the next to near month futures provide better hedging effectiveness as compared to near month futures for crude oil and silver. It is recommended that the policy makers should pay attention towards the number of delivery centres, standard of quality of underlying assets and transaction costs in spot market.

scholarly journals Commodity Price Correlation And Time Varying Hedge Ratios

2014 ◽  
Vol 30 (4) ◽  
pp. 1053
Author(s):  
Amine Lahiani ◽  
Khaled Guesmi
Keyword(s):  
Stock Market ◽  
Value At Risk ◽  
Price Volatility ◽  
Commodity Price ◽  
Conditional Value At Risk ◽  
Time Varying ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Hedging Strategies ◽  
Hedge Ratios

<p>This paper examines the price volatility and hedging behavior of commodity futures indices and stock market indices. We investigate the weekly hedging strategies generated by return-based and range-based asymmetric dynamic conditional correlation (DCC) processes. The hedging performances of short and long hedgers are estimated with a semi-variance, low partial moment and conditional value-at-risk. The empirical results show that range-based DCC model outperforms return-based DCC model for most cases.</p>

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