Hedging Effectiveness on the Thailand Futures Exchange Market

Polwat Lerskullawat ()
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Polwat Lerskullawat: Faculty of Business Administration, Kasetsart University, Bangkok 10900, Thailand.

Asian Journal of Applied Economics/ Applied Economics Journal, 2019, vol. 26, issue 2, 38-58

Abstract: This study examines hedge strategies through derivative instruments in an emerging market, with evidence from Thailand during the period 2011 to 2018. Focusing on a series of futures contracts on the Thailand Futures Exchange market (TFEX), namely SET50 futures, gold futures and interest rate futures, the study methods employed in both static and time-varying models: OLS, VECM, time-varying OLS, EGARCH, BEKK and DCC. In general, the results show that SET50 futures display the best hedge ratio and hedge effectiveness in Thailand, followed by gold futures and interest rate futures. Therefore, investors in Thailand will benefit from investing in SET50 futures only if their business or hedge assets relate to the composite index, particularly the SET50 index. Otherwise, the other types of derivatives or financial instruments may need to be considered more carefully for investment strategies. However, the hedge effectiveness of gold futures appears to be sensitive when the time-varying models are applied differently. Furthermore, these results are consistent with the previous literature and shed more light on the study of derivative products in Thailand.

Keywords: hedge effectiveness; optimal hedge ratio; Thailand futures exchange market; static model; time-varying model (search for similar items in EconPapers)
JEL-codes: G11 G13 G32 G39 (search for similar items in EconPapers)
Date: 2019
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