Estimating Hedge Ratio and The Hedging Effectiveness of Stock Index Futures Contract
This study investigates the hedging effectiveness of stock index futures for two Asian markets namely Kuala Lumpur Composite Index futures of Malaysia and Heng Seng stock Index futures of Hong Kong. We employed four different econometric methods such as-conventional ordinary least squares (OLS) mod...
| Main Authors: | , |
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| Format: | Conference or Workshop Item |
| Language: | English English English |
| Published: |
2014
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/37652/ http://irep.iium.edu.my/37652/4/scan0003.pdf http://irep.iium.edu.my/37652/1/IRIIE_2014_PDF.pdf http://irep.iium.edu.my/37652/6/IRIIE-2014_Evidence.pdf |
| Summary: | This study investigates the hedging effectiveness of stock index futures for two Asian markets namely Kuala Lumpur Composite Index futures of Malaysia and
Heng Seng stock Index futures of Hong Kong. We employed four different econometric methods such as-conventional ordinary least squares (OLS) model,
vector autoregression (VAR) model, error correction model (ECM) and generalized autoregressive conditional heteroskedasticity (GARCH) models to estimate
optimal hedge ratio and its hedging effectiveness. We found that ECM model provides better results with respect to risk reduction. In other words, in terms of
hedging effectiveness, ECM model exhibits better performance and Hong Kong market appears to provide better hedging performance to market participants
compared to Malaysian futures market. |
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