Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets

Kumar, Brajesh; Singh, Priyanka; Pandey, Ajay

doi:10.2139/ssrn.1206555

Cited by 22 publications

(20 citation statements)

References 39 publications

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“…This method minimized the problem of autocorrelation between errors and futures price as an endogen variable (Kumar et al 2008). The data used should be stationary.…”

Section: Vector Autoregression (Var) Methodsmentioning

confidence: 99%

Analysis of optimal hedge ratio and hedging effectiveness in Taiwan stock exchange capitalization weighted stock index (TAIEX) futures

Jahja¹,

Loebiantoro²

2018

Proceedings of the 15th International Symposium on Management (INSYMA 2018)

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Theoretically, hedging is effective if there is a balance between the price of asset and price of hedging. The objective of this research was to determine the optimal hedge ratio and hedging effectiveness using Vector Autoregression (VAR) and Vector Error Correction Model (VECM) on TAIEX (Taiwan Stock Exchange Capitalization Weighted Stock Index) Futures. This research provides the conclusion about the more reliable model that can best explain the hedging effectiveness. The daily data were classified into two periods, those are In-Sample Period (January 1st, 2012-December 31st, 2015) and Out-Sample Period (January 1st-December 31st, 2016) and were collected on spot and futures index market of TAIEX. The results of this study stated that VECM model provides greater variance reduction compared to the VAR model on both in-sample period and out-of-sample period. The conclusion was a VECM model is more reliable to determine hedging effectiveness for managing the risk.

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“…This method minimized the problem of autocorrelation between errors and futures price as an endogen variable (Kumar et al 2008). The data used should be stationary.…”

Section: Vector Autoregression (Var) Methodsmentioning

confidence: 99%

Analysis of optimal hedge ratio and hedging effectiveness in Taiwan stock exchange capitalization weighted stock index (TAIEX) futures

Jahja¹,

Loebiantoro²

2018

Proceedings of the 15th International Symposium on Management (INSYMA 2018)

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“…Bai et al (2019) agree that the hedging performance can be improved by incorporating conditional heteroskedasticity into the estimation. Empirical evidence from the Indian futures market supports the value of GARCH models in estimating hedging gains; such studies include Kumar et al (2008), Bhaduri and Durai (2008), Gupta and Singh (2009), and Singh (2017), among others.…”

Section: [ ∆ ∆ mentioning

confidence: 98%

Tackling Investment Risks Using Equity Options During Extreme Economic Upheavals: Indian Evidence

Jose

Varghese

2021

Colombo Bus. J

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The study is an empirical scrutiny on the Indian equity options market to examine whether it facilitates the reduction of investment risks, focusing on an economic sphere with financial upheavals. The risk mitigation ability is examined with respect to the integration of nearmonth call and put options markets having different levels of exercisability with the equity market in the National Stock Exchange of India. The optimal size of options contracts required for establishing a hedge portfolio that minimises the risk exposure to a maximum possible magnitude and the level of gains resulting from such hedges are identified following the minimum variance approach, using Diagonal BEKK GARCH. The results indicate that ATM, ITM, and DITM call options and ATM, OTM, DOTM, and DITM put options provide effective risk reduction that can be efficiently utilised by the existing as well as prospective investors in the equity market.

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“…In the Indian context, Dharmasena and Bessler (2004) reveal that prices in commodity markets are in a random walk. Kumar et al (2011) observe that the efficiency of the futures contracts to hedge risk is low in India. While, Salvadi Easwaran and Ramasundaram (2008) acknowledge the futures market are not much efficient in information processing, Iyer and Pillai (2010) supply the evidence of the differential impact of price integration during the expiration week for various commodities markets.…”

Section: Background the Studymentioning

confidence: 99%

Price discovery and pairs trading potentials: the case of metals markets

Nair

2021

JFEP

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Purpose This study aims to validate the “expectancy theory” of asset pricing and explores the price discovery process in metals futures markets. Design/methodology/approach This paper adopts the Johansen cointegration and vector error correction model approach to investigate the potentials of Pairs trading in the metals market during the period 2008–2019. Findings The results find the price movements in metal markets are not random walk and the current “futures” prices are the reasonable estimate of the “spot” metal prices in future. This study does not notice any significant differences in the price efficiency across metals markets, which signal the effects of limited idiosyncratic forces in price transmission. Practical implications The research suggests the covert use of metal futures to make gains from arbitrage trading. Originality/value The study emphasizes the potential of “pair trading” in commodity market context that is seldom discussed in academic papers.

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Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets

Cited by 22 publications

References 39 publications

Analysis of optimal hedge ratio and hedging effectiveness in Taiwan stock exchange capitalization weighted stock index (TAIEX) futures

Analysis of optimal hedge ratio and hedging effectiveness in Taiwan stock exchange capitalization weighted stock index (TAIEX) futures

Tackling Investment Risks Using Equity Options During Extreme Economic Upheavals: Indian Evidence

Price discovery and pairs trading potentials: the case of metals markets

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