Journal of Hospitality Application and Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Hedging Effectiveness of Futures Contracts:A Study of Select Stocks in Indian Tourism and Hospitality Sector


Affiliations
1 Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India
     

   Subscribe/Renew Journal


This paper investigates the hedge effectiveness of futures contracts of tourism and hospitality sector in India using four sample stocks namely, ADANIPORTS, APOLLOHOSP, CONCOR and JETAIRWAYS, traded at NSE, for which data has been collected from January 1, 2016 to December 31, 2017 for near month futures contracts. The optimal hedge ratio is estimated using five specifications: naive, ordinary least square, autoregressive moving average ordinary least squares, vector autoregression and vector error correction. The study finds that one-to-one naive model provides superior hedging effectiveness over all the other models, implying equal investment in both spot and futures market to achieve highest effectiveness. Overall, the study finds that tourism and hospitality sector provides an effective platform for hedging with futures contracts.

Keywords

Tourism, Hospitality, Futures Contract, Hedging Effectiveness and Optimal Hedge Ratio.
Subscription Login to verify subscription
User
Notifications
Font Size


  • îî Alexander, C., & Barbosa, A. (2007). Effectiveness of minimumvariance hedging. Journal of Portfolio Management, 33(2), 46.

  • îî Bhaduri, S. N., & Sethu Durai, S. R. (2008). Optimal hedge ratio and hedging effectiveness of stock index futures: evidence from India. Macroeconomics and Finance in Emerging Market Economies, 1(1), 121-134.

  • îî Bhargava, V., & Malhotra, D. K. (2007). Determining the optimal hedge ratio: Evidence from cotton and soybean markets. The Journal of Business and Economic Studies, 13(1), 38.

  • îî Bonga-Bonga, L., & Umoetok, E. (2016). The effectiveness of index futures hedging in emerging markets during the crisis period of 2008-2010: Evidence from South Africa. Applied Economics, 48(42), 3999-4018.

  • îî Castelino, M. G. (1992). Hedge effectiveness: Basis risk and minimum:Variance hedging. Journal of Futures Markets, 12(2), 187-201.

  • îî Chou, W. L., Denis, K. F., & Lee, C. F. (1996). Hedging with the Nikkei index futures: The convential model versus the error correction model. The Quarterly Review of Economics and Finance, 36(4), 495-505.

  • îî Choudhry, T. (2004). The hedging effectiveness of constant and time-varying hedge ratios using three Pacific Basin stock futures. International Review of Economics & Finance, 13(4), 371-385.

  • îî Deaves, R. (1994). Naive versus conditional hedging strategies: The case of Canadian stock index futures. Canadian Journal of Administrative Sciences, 11(3), 264-270.

  • îî Ederington, L. H. (1979). The hedging performance of the new futures markets. The Journal of Finance, 34(1), 157-170.

  • îî Floros, C., & Vougas, D. V. (2004). Hedge ratios in Greek stock index futures market. Applied Financial Economics, 14(15), 1125-1136.

  • îî Floros, C., & Vougas, D. (2006). Hedging effectiveness in Greek stock index futures market, 1999-2001. International Research Journal of Finance and Economics, 5, 7-18.

  • îî Ghosh, A. (1993). Hedging with stock index futures: Estimation and forecasting with error correction model. Journal of Futures Markets, 13(7), 743-752.

  • îî Gupta, K., & Singh, B. (2009). Estimating the optimal hedge ratio in the Indian Equity Futures market. IUP Journal of Financial Risk Management, 6(3/4), 38.

  • îî Holmes, P. (1995). Ex ante hedge ratios and the hedging effectiveness of the FTSE-100 stock index futures contract. Applied Economics Letters, 2(3), 56-59.

  • îî Hou, Y., & Li, S. (2013). Hedging performance of Chinese stock index futures: An empirical analysis using wavelet analysis and flexible bivariate GARCH approaches. Pacific-Basin Finance Journal, 24, 109-131.

  • îî Johnson, L. L. (1960). The theory of hedging and speculation in commodity futures. The Review of Economic Studies, 27(3), 139-151.

  • îî Lee, H. C., & Chien, C. Y. (2010). Hedging performance and stock market liquidity: Evidence from the Taiwan futures market. Asia-Pacific Journal of Financial Studies, 39(3), 396-415.

  • îî Lien, D. (2004). Cointegration and the optimal hedge ratio: The general case. The Quarterly Review of Economics and Finance, 44(5), 654-658.

  • îî Lien, D. (2005). The use and abuse of the hedging effectiveness measure. International Review of Financial Analysis, 14(2), 277-282.

  • îî Lien, D., Tse, Y. K., & Tsui, A. K. (2002). Evaluating the hedging performance of the constant-correlation GARCH model. Applied Financial Economics, 12(11), 791-798.

  • îî Lim, K. G. (1996). Portfolio hedging and basis risks. Applied Financial Economics, 6(6), 543-549.

  • îî Lypny, G., & Powalla, M. (1998). The hedging effectiveness of DAX futures. The European Journal of Finance, 4(4), 345-355.

  • îî Malliaris, A. G., & Urrutia, J. L. (1991). The impact of the lengths of estimation periods and hedging horizons on the effectiveness of a hedge: Evidence from foreign currency futures. Journal of Futures Markets, 11(3), 271-289.

  • îî Mandal, A. (2011). Hedging effectiveness of stock index futures contracts in the Indian derivative markets. International Journal of Financial Management, 1(2), 1.

  • îî Men, X., & Men, X. (2009). Hedging effectiveness of Hong Kong stock index futures contracts. International Journal of Business and Management, 3(8), 98.

  • îî Moon, G. H., Yu, W. C., & Hong, C. H. (2009). Dynamic hedging performance with the evaluation of multivariate GARCH models: Evidence from KOSTAR index futures. Applied Economics Letters, 16(9), 913-919.

  • îî Park, T. H., & Switzer, L. N. (1995). Bivariate GARCH estimation of the optimal hedge ratios for stock index futures: A note. Journal of Futures Markets, 15(1), 61-67.

  • îî Pradhan, K. (2011). The hedging effectiveness of stock index futures: Evidence for the S&P CNX nifty index traded in India. South East European Journal of Economics and Business, 6(1), 111-123.

  • îî Rao, S. N., & Thakur, S. K. (2008). Optimal hedge ratio and hedge efficiency: An empirical investigation of hedging in Indian derivatives market. Society of Actuaries, Monograph Publication, 1-27.

  • îî Stein, J. L. (1961). The simultaneous determination of spot and futures prices. The American Economic Review, 51(5), 1012-1025.

  • îî Stoll, H. R., & Whaley, R. E. (1990). The dynamics of stock index and stock index futures returns. Journal of financial and quantitative analysis, 25(4), 441-468.

  • îî Wang, Y., Wu, C., & Yang, L. (2015). Hedging with futures: Does anything beat the naïve hedging strategy?. Management Science, 61(12), 2870-2889.

  • îî Working, H. (1953). Hedging reconsidered. Journal of Farm Economics, 35(4), 544-561.

  • îî Yaganti, C. H., & Kamaiah, B. (2012). Hedging efficiency of commodity futures markets in India. IUP Journal of Financial Risk Management, 9(2), 40.

  • îî Yang, W., & Allen, D. E. (2004). Multivariate GARCH hedge ratios and hedging effectiveness in Australian futures markets. Accounting & Finance, 45(2), 301-321.


Abstract Views: 246

PDF Views: 0




  • Hedging Effectiveness of Futures Contracts:A Study of Select Stocks in Indian Tourism and Hospitality Sector

Abstract Views: 246  |  PDF Views: 0

Authors

Mandeep Kaur
Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India
Kapil Gupta
Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India

Abstract


This paper investigates the hedge effectiveness of futures contracts of tourism and hospitality sector in India using four sample stocks namely, ADANIPORTS, APOLLOHOSP, CONCOR and JETAIRWAYS, traded at NSE, for which data has been collected from January 1, 2016 to December 31, 2017 for near month futures contracts. The optimal hedge ratio is estimated using five specifications: naive, ordinary least square, autoregressive moving average ordinary least squares, vector autoregression and vector error correction. The study finds that one-to-one naive model provides superior hedging effectiveness over all the other models, implying equal investment in both spot and futures market to achieve highest effectiveness. Overall, the study finds that tourism and hospitality sector provides an effective platform for hedging with futures contracts.

Keywords


Tourism, Hospitality, Futures Contract, Hedging Effectiveness and Optimal Hedge Ratio.

References