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Gupta, Kapil
- Examining the Hedging Effectiveness of Futures Contracts over Pre and Post Financial Crisis Period:Evidence from National Stock Exchange of India
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Authors
Kapil Gupta
1,
Mandeep Kaur
1
Affiliations
1 Punjab Institute of Management (PIM), I. K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
1 Punjab Institute of Management (PIM), I. K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
Source
International Journal of Banking, Risk and Insurance, Vol 3, No 2 (2015), Pagination: 10-29Abstract
Present study examines the efficiency of futures contracts in hedging unwanted price risk over highly volatile period i.e. June 2000-December 2007 and January 2008-June 2014, pre and post-financial crisis period, by using S&PCNXNIFTY, CNXIT and BANKNIFTY for near month futures contracts. The hedge ratios have been estimated by using five methods namely Ederington's Model, ARMA-OLS, GARCH (p,q), EGARCH (p,q) and TGARCH (p,q). The study finds that hedging effectiveness increased during post crisis period for S&PCNXNIFTY and BANKNIFTY. However, for CNXIT hedging effectiveness was better during pre crisis period than post crisis. The study also finds that time-invariant hedge ratio is more efficient than time-variant hedge ratio.Keywords
Hedge Ratio, Hedge Horizon, Basis Risk, Heteroscedasticity, Conditional Volatility.
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- Testing the Hedging Effectiveness of Index and Individual Stock Futures Contracts:Evidence from India
Abstract Views :250 |
PDF Views:0
Authors
Mandeep Kaur
1,
Kapil Gupta
1
Affiliations
1 Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
1 Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
Source
International Journal of Banking, Risk and Insurance, Vol 6, No 2 (2018), Pagination: 54-66Abstract
Present study attempts to estimate hedging effectiveness in Indian equity futures market using NIFTY50 index futures and its 17 composite stock futures (out of 50 stocks). The study uses near month futures contracts from their respective date of inception until March 31, 2017. The study applies eight methods, proposed in the literature, to estimate optimal hedge ratio namely; Naïve, Ederington’s OLS, ARMA-OLS, VAR, VECM, GARCH, EGARCH, and TARCH. It is observed that OLS hedge ratio provides highest hedging effectiveness, whereas lowest hedging effectiveness is given by Naïve and time-varying models. The above observations imply that constant hedging is more efficient than dynamic hedging which is consistent with the findings of Wang et al (2015) and Bonga and Umoetok (2016).Keywords
Equity Futures Market, GARCH, Hedging Effectiveness, OLS, Optimal Hedge Ratio.References
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