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Should Investor Invest in both Future and Spot Market? : an Analysis through Optimal Hedge Ratio


Affiliations
1 Department of Commerce, St. Thomas College, India
2 Department of Commerce, Pondicherry University, Pondicherry, India
 

This study is to estimate optimal hedge ratio with the variables from Indian futures and spot market and also nineteen individual stock prices. Diagonal VEC-GARCH model is used for the period from June 2000 to June 2011. The Empirical results confirm that there is effective risk sharing and hedging processes in Indian futures market. It is also found that Indian futures and spot markets have strong causal relationship; which allows the trader to make perfect arbitrage process and hedge their risks.

Keywords

Hedge Ratio, Futures Market, Spot Market, Causal Relationship
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  • Should Investor Invest in both Future and Spot Market? : an Analysis through Optimal Hedge Ratio

Abstract Views: 150  |  PDF Views: 44

Authors

Babu Jose
Department of Commerce, St. Thomas College, India
D. Lazar
Department of Commerce, Pondicherry University, Pondicherry, India

Abstract


This study is to estimate optimal hedge ratio with the variables from Indian futures and spot market and also nineteen individual stock prices. Diagonal VEC-GARCH model is used for the period from June 2000 to June 2011. The Empirical results confirm that there is effective risk sharing and hedging processes in Indian futures market. It is also found that Indian futures and spot markets have strong causal relationship; which allows the trader to make perfect arbitrage process and hedge their risks.

Keywords


Hedge Ratio, Futures Market, Spot Market, Causal Relationship