Cross hedging with stock index futures

Zainudin, Ahmad Danial and Mohamad, Azhar (2021) Cross hedging with stock index futures. The Quarterly Review of Economics and Finance, 82. pp. 128-144. ISSN 1062-9769 E-ISSN 1878-4259

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Abstract

This paper examines the cross hedging effectiveness between UK FTSE100 and world stock index futures from developed and emerging markets: the US, Australia, Brazil, Japan, Hong Kong, Korea and Malaysia. Our daily dataset spans from August 2002 through November 2019. We apply the OLS, VECM and Maximal Overlap Discrete Wavelet Transform (MODWT) to calculate the optimal cross hedge ratio and cross hedging effectiveness. Our empirical results show that the US E-Mini DJIA$5 futures contract is the best cross hedging instrument for the UK FTSE100, followed by the Australia S&P/ASX 200. The multiscale cross hedging effectiveness results from the MODWT estimation suggest the optimal hedging period of more than 256 days with the US E-Mini DJIA$5 and Australia S&P/ASX 200 futures.

Item Type:	Article (Journal)
Uncontrolled Keywords:	Cross hedging; Wavelet; Hedging effectiveness; Futures; Optimal hedge ratio.
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 Economics and Management Sciences Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr Azhar Mohamad
Date Deposited:	21 Sep 2021 10:12
Last Modified:	21 Sep 2021 10:12
URI:	http://irep.iium.edu.my/id/eprint/92373

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