Time-varying distribution and hedging effectiveness of three pacific-basin stock futures
Time-varying distribution and hedging effectiveness of three pacific-basin stock futures
This paper investigates the hedging effectiveness of Australian, Hong Kong, and Japanese stock futures markets. The traditional hedge and the minimum variance hedge ratios are all constant whereas the bivariate GARCH hedge ratio is time varying. The effectiveness of the hedge ratio is compared by investigating the out-of-sample performance of the three ratios. The whole sample consists of weekly returns from January 1990 to December 2000. Two 1-year, out-of-sample periods are used: January 1999 to December 1999 and January 2000 to December 2000. Results show that the time-varying GARCH hedge ratio outperforms the constant ratios in most of the cases. This is true using both out-of-sample periods.
hedge ratio, bivariate GARCH, cash index, futures index, variance
371-385
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
2004
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Choudhry, Taufiq
(2004)
Time-varying distribution and hedging effectiveness of three pacific-basin stock futures.
International Review of Economics and Finance, 13 (4), .
(doi:10.1016/j.iref.2003.04.002).
Abstract
This paper investigates the hedging effectiveness of Australian, Hong Kong, and Japanese stock futures markets. The traditional hedge and the minimum variance hedge ratios are all constant whereas the bivariate GARCH hedge ratio is time varying. The effectiveness of the hedge ratio is compared by investigating the out-of-sample performance of the three ratios. The whole sample consists of weekly returns from January 1990 to December 2000. Two 1-year, out-of-sample periods are used: January 1999 to December 1999 and January 2000 to December 2000. Results show that the time-varying GARCH hedge ratio outperforms the constant ratios in most of the cases. This is true using both out-of-sample periods.
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Published date: 2004
Keywords:
hedge ratio, bivariate GARCH, cash index, futures index, variance
Identifiers
Local EPrints ID: 37451
URI: http://eprints.soton.ac.uk/id/eprint/37451
ISSN: 1059-0560
PURE UUID: c012081b-800e-430a-9a69-934e71c2ebd6
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Date deposited: 23 May 2006
Last modified: 16 Mar 2024 03:16
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