A Comparison of Hedge Effectiveness and Price Discovery between TAIFEX TAIEX Index Futures and SGX MSCI Taiwan Index Futures

Shen-Yuan Chen (), Ching-Chung Lin (), Pin-Huang Chou () and Dar-Yeh Hwang ()
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Shen-Yuan Chen: Department of Finance, Ming Chuan University, Taiwan, R.O.C.
Ching-Chung Lin: Department of Business Administration, National Cheng-Kung University and Kao-Yuan Institute of Technology, Taiwan, R.O.C.
Pin-Huang Chou: Department of Finance, National Central University, Taiwan, R.O.C.
Dar-Yeh Hwang: Department of Finance, National Taiwan University, Taiwan, R.O.C.

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2002, vol. 05, issue 02, 277-300

Abstract: This article uses daily data from July 21, 1998 to July 31, 2000 to examine the hedging effectiveness, price behavior, and lead-lag relationship of SGX MSCI Taiwan index futures and TAIFEX TAIEX futures. By applying the Bayesian approach using Gibbs sampler, we find that TAIFEX index futures has a better hedging performance. A variance ratio test reveals that mean reversion and negative correlation of returns exist in SGX index futures. Only TAIFEX TAIEX futures is cointegrated with TAIEX spot. The uni-directional Granger causality between the two futures markets and spot market are from SGX to TAIEX and from TAIEX to TAIFEX. In terms of price discovery, SGX MSCI Taiwan index futures play a more important role than TAIFEX TAIEX futures.

Keywords: Gibbs sampler; Hedge; Index Futures; Price Discovery; Taiwan (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (8)

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DOI: 10.1142/S0219091502000791

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