Hedge Ratios in South African Stock Index Futures

Stavros Degiannakis and Christos Floros

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines hedging in South African stock index futures market. The hedge ratios are estimated by six econometric techniques: the standard OLS regression, simple and vector error correction models, the ECM with generalised autoregressive heteroskedasticity (GARCH) as well as time-varying CCC-ARCH and Diag-BEKK ARCH models. The empirical results show that the ECM-GARCH model (capturing volatility clustering) provides best hedging ratios, while CCC-ARCH is superior to OLS, ECM and VECM. We conclude that there is not a unique model specification for measuring hedge ratios. For each market (emerging and mature), a model’s comparative analysis must be conducted in order to extract the best performing model.

Keywords: Hedging; Hedge Ratio; Futures; SAFEX; OLS; ECM; VECM; GARCH (search for similar items in EconPapers)
JEL-codes: C32 G13 G15 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

Published in Journal of Emerging Market Finance 9.3(2010): pp. 285-304

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Journal Article: Hedge Ratios in South African Stock Index Futures (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96301

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