Can Crude Oil Futures be the Good Hedging Tool for Tyre Equities? Evidence from India

K. Abhaya Kumar, Prakash Pinto, Iqbal Thonse Hawaldar and K. G. Ramesh
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K. Abhaya Kumar: Department of Business Administration, Mangalore Institute of Technology & Engineering, Mangalore, Karnataka, India,
Prakash Pinto: Department of Business Administration, St. Joseph Engineering College, Mangalore, Karnataka, India,
Iqbal Thonse Hawaldar: Department of Accounting and Finance, College of Business Administration, Kingdom University, Sanad, Bahrain,
K. G. Ramesh: Department of Business Administration, Sahyadri College of Engineering & Management, Mangalore, Karnataka, India.

International Journal of Energy Economics and Policy, 2021, vol. 11, issue 6, 523-537

Abstract: This article examines the cross-hedging performance of crude futures against the tyre equity futures to hedge the tyre equity stocks. Three multivariate conditional volatility models, namely constant conditional correlation (CCC), dynamic conditional correlation (DCC) and diagonal BEKK are applied. Using the conditional covariance and variance from the MGARCH estimates, the optimal hedge ratios (OHRs) are computed. The results of this study show that the volatility spillover exists between the returns of crude oil futures and tyre equity. However, for tyre equities, the best cross hedge is tyre equity futures rather than crude futures. All the MGARCH estimates show better hedging possibility with tyre equity futures, particularly MRF futures.

Keywords: CCC; Crude future; DCC; Diagonal BEKK; Tyre equity; Tyre equity futures (search for similar items in EconPapers)
JEL-codes: G21 G30 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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