The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets

Shaen Corbet, Hou, Yang (Greg), Yang Hu and Les Oxley

Research in International Business and Finance, 2022, vol. 59, issue C

Abstract: In this paper, we investigate both constant and time-varying hedge ratios in terms of the effectiveness of CSI300 index futures during the COVID-19 crisis. Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effectiveness using the naïve hedging strategy; however, increased effectiveness of OLS and EC hedge ratios are identified. Differential behaviour is identified when considering five newly introduced COVID-19 concept-based stock indices. Time-varying hedge ratios indicate the weakened effectiveness, ranging between 20% and 40% variance reduction. Evidence suggests that the capability of the CSI300 index futures to hedge against the risks of the COVID-19 is impaired, regardless of whether constant or time-varying hedge ratios are used. Such results provide important implications to both local and foreign investors in the Chinese stock market.

Keywords: COVID-19; Hedge ratios; China; Financial markets; Diversification (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001318

DOI: 10.1016/j.ribaf.2021.101510

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