<abstract xml:lang="en" xmlns="http://www.w3.org/1999/xhtml"><p>This study evaluates optimal hedge ratios and the hedging effectiveness of stock index futures. The optimal hedge ratios are estimated from the ordinary least square (OLS) regression model, the vector autoregression model (VAR), the vector error correction model (VECM) and multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) models such as VAR-GARCH and VEC-GARCH using the S&amp;P CNX Nifty index and its futures index. Hedging effectiveness is measured in terms of within sample and out of sample risk-return trade-off at various forecasting horizons. The analysis found that the VEC-GARCH time varying hedge ratio provides the greatest portfolio risk reduction and generates the highest portfolio returns.</p></abstract>

This study evaluates optimal hedge ratios and the hedging effectiveness of stock index futures. The optimal hedge ratios are estimated from the ordinary least square (OLS) regression model, the vector autoregression model (VAR), the vector error correction model (VECM) and multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) models such as VAR-GARCH and VEC-GARCH using the S&P CNX Nifty index and its futures index. Hedging effectiveness is measured in terms of within sample and out of sample risk-return trade-off at various forecasting horizons. The analysis found that the VEC-GARCH time varying hedge ratio provides the greatest portfolio risk reduction and generates the highest portfolio returns.

The Hedging Effectiveness of Stock Index Futures: Evidence for the S&amp;P CNX Nifty Index Traded in India

National Council of Applied Economic Research (NCAER), New Delhi-110002

South East European Journal of Economics and Business

The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in India

This study evaluates optimal hedge ratios and the hedging effectiveness of stock index futures. The optimal hedge ratios are estimated from the ordinary least...

The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in India

Publicado en línea: 03 jun 2011

Páginas: 111 - 123

DOI: https://doi.org/10.2478/v10033-011-0010-2

Palabras clave
Hedging, M-GARCH, Forecast horizons, S&P CNX Nifty futures

This content is open access.

The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in India

Publicado en línea: 03 jun 2011

Páginas: 111 - 123

DOI: https://doi.org/10.2478/v10033-011-0010-2

Palabras claveHedging, M-GARCH, Forecast horizons, S&P CNX Nifty futures

This content is open access.

Palabras clave
Hedging, M-GARCH, Forecast horizons, S&P CNX Nifty futures