Time-varying hedging using the state-space model in the Malaysian equity market

Time-varying hedging using the state-space model in the Malaysian equity market

Theoretical and practice of financial hedging have expanded over the last 25 years. Research in this area is numerous and one of them is identifying the time-varying optimal hedge ratio. In this study, the time-varying hedge ratio is analysed using the State Space model (Kalman Filter) on daily Kual...

Full description

Bibliographic Details
Main Authors: Izani Ibrahim, Sheela Devi D. Sundarasen
Format: Article
Language:English
Published: Penerbit Universiti Kebangsaan Malaysia 2010
Online Access:http://journalarticle.ukm.my/1773/
http://journalarticle.ukm.my/1773/
http://journalarticle.ukm.my/1773/1/327-606-1-SM.pdf
id ukm-1773
recordtype eprints
spelling ukm-17732016-12-14T06:30:13Z http://journalarticle.ukm.my/1773/ Time-varying hedging using the state-space model in the Malaysian equity market Izani Ibrahim, Sheela Devi D. Sundarasen, Theoretical and practice of financial hedging have expanded over the last 25 years. Research in this area is numerous and one of them is identifying the time-varying optimal hedge ratio. In this study, the time-varying hedge ratio is analysed using the State Space model (Kalman Filter) on daily Kuala Lumpur Composite Index (KLCI) and Kuala Lumpur Future Index (KLFI) from April 2005 to March 2008. Comparison between the static and time-varying hedge ratio and forecast performance is done to analyse the efficiency of the time-varying estimates. Our results show that for forecasting purposes the State Space model has the ability to forecast better when 30 days of forecast horizon are used. The volatility of the time varying hedge ratio is relatively low, but the static estimate of the hedge ratio overestimates the amount of the KLFI futures contract needed to hedge the KLCI. This may prove to be an unnecessary cost for fund managers in hedging using KLFI Penerbit Universiti Kebangsaan Malaysia 2010-12 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/1773/1/327-606-1-SM.pdf Izani Ibrahim, and Sheela Devi D. Sundarasen, (2010) Time-varying hedging using the state-space model in the Malaysian equity market. Jurnal Pengurusan, 31 . ISSN 0127-2713 http://www.ukm.my/penerbit/jurus.htm
repository_type Digital Repository
institution_category Local University
institution Universiti Kebangasaan Malaysia
building UKM Institutional Repository
collection Online Access
language English
description Theoretical and practice of financial hedging have expanded over the last 25 years. Research in this area is numerous and one of them is identifying the time-varying optimal hedge ratio. In this study, the time-varying hedge ratio is analysed using the State Space model (Kalman Filter) on daily Kuala Lumpur Composite Index (KLCI) and Kuala Lumpur Future Index (KLFI) from April 2005 to March 2008. Comparison between the static and time-varying hedge ratio and forecast performance is done to analyse the efficiency of the time-varying estimates. Our results show that for forecasting purposes the State Space model has the ability to forecast better when 30 days of forecast horizon are used. The volatility of the time varying hedge ratio is relatively low, but the static estimate of the hedge ratio overestimates the amount of the KLFI futures contract needed to hedge the KLCI. This may prove to be an unnecessary cost for fund managers in hedging using KLFI
format Article
author Izani Ibrahim,
Sheela Devi D. Sundarasen,
spellingShingle Izani Ibrahim,
Sheela Devi D. Sundarasen,
Time-varying hedging using the state-space model in the Malaysian equity market
author_facet Izani Ibrahim,
Sheela Devi D. Sundarasen,
author_sort Izani Ibrahim,
title Time-varying hedging using the state-space model in the Malaysian equity market
title_short Time-varying hedging using the state-space model in the Malaysian equity market
title_full Time-varying hedging using the state-space model in the Malaysian equity market
title_fullStr Time-varying hedging using the state-space model in the Malaysian equity market
title_full_unstemmed Time-varying hedging using the state-space model in the Malaysian equity market
title_sort time-varying hedging using the state-space model in the malaysian equity market
publisher Penerbit Universiti Kebangsaan Malaysia
publishDate 2010
url http://journalarticle.ukm.my/1773/
http://journalarticle.ukm.my/1773/
http://journalarticle.ukm.my/1773/1/327-606-1-SM.pdf
first_indexed 2023-09-18T19:34:17Z
last_indexed 2023-09-18T19:34:17Z
_version_ 1777405166381694976

Similar Items