Estimating Hedge Ratio and The Hedging Effectiveness of Stock Index Futures Contract

Islam, Mohd Aminul and Mohd Noar, Nor Zaihan (2014) Estimating Hedge Ratio and The Hedging Effectiveness of Stock Index Futures Contract. In: IIUM Research, Invention and Innovation Exhibition 2014, 11-13 June, 2014, Gombak, Kuala Lumpur. (Unpublished)

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Abstract

This study investigates the hedging effectiveness of stock index futures for two Asian markets namely Kuala Lumpur Composite Index futures of Malaysia and Heng Seng stock Index futures of Hong Kong. We employed four different econometric methods such as-conventional ordinary least squares (OLS) model, vector autoregression (VAR) model, error correction model (ECM) and generalized autoregressive conditional heteroskedasticity (GARCH) models to estimate optimal hedge ratio and its hedging effectiveness. We found that ECM model provides better results with respect to risk reduction. In other words, in terms of hedging effectiveness, ECM model exhibits better performance and Hong Kong market appears to provide better hedging performance to market participants compared to Malaysian futures market.

Item Type:	Conference or Workshop Item (Poster)
Additional Information:	5651/37652
Uncontrolled Keywords:	Hedging,stock index futures
Subjects:	H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Science > Department of Computational and Theoretical Sciences
Depositing User:	Dr Aminul Islam
Date Deposited:	27 Aug 2014 12:40
Last Modified:	15 Jun 2017 11:52
URI:	http://irep.iium.edu.my/id/eprint/37652

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