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Constant & time-varying hedge ratio for FBMKLCI stock index futures

Islam, Mohd Aminul (2016) Constant & time-varying hedge ratio for FBMKLCI stock index futures. In: 37th International Conference on Quantum Probability and Related Topics (QP37) 2016, 22-26 August 2016, Kuantan, Pahang, Malaysia. (Unpublished)

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This paper examines hedging strategy in stock index futures for Kuala Lumpur Composite Index futures of Malaysia. We employed two different econometric methods such as-vector error correction model (VECM) and bivariate generalized autoregressive conditional heteroskedasticity (BGARCH) models to estimate optimal hedge ratio by using daily data of KLCI index and KLCI futures for the period from January 2012 to June 2016 amounting to a total of 1107 observations. We found that VECM model provides better results with respect to estimating hedge ratio for spot month futures and one-month futures, while BGACH shows better for distance futures. While VECM estimates time invariant hedge ratio, the BGARCH shows that hedge ratio changes over time. As such, hedger should rebalance his/her position in futures contract time to time in order to reduce risk exposure.

Item Type: Conference or Workshop Item (Poster)
Additional Information: 5651/54322
Subjects: H Social Sciences > HG Finance
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: 05 Jan 2017 19:02
Last Modified: 05 Jan 2017 19:02
URI: http://irep.iium.edu.my/id/eprint/54322

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