OPTIMAL HEDGE RATIO IN TURKISH STOCK INDEX FUTURES MARKET: A DECO-FIAPARCH APPROACH

Ä°smail Çelä°k,
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Ä°smail Çelä°k,: Department of Banking and Finance, Burdur Mehmet Akif Ersoy University, Burdur, Turkey. Author-Name: SAK, Ahmet Furkan

Studii Financiare (Financial Studies), 2021, vol. 25, issue 4, 17-33

Abstract: This paper adopts a new approach called DECO-FIAPARCH model for estimating the optimal hedge ratio (HR) in Turkish Stock Index Futures market in the presence of asymmetry and long memory. The study covers the period from May 3, 2005 until April 4, 2019, total of 3,508 daily observations. The DECO-FIAPARCH model shows that, on average, a $1 long position in the spot market can be hedged for $0.95316 with a short position in the futures market. Furthermore, optimal hedge ratio is time-varying and takes value between 0.52258 and 1.5263. This demonstrates that investors should revise their positions actively by considering the fluctuating cross correlations in spot and futures markets.

Keywords: Time-Varying Hedge Ratio; Asymmetry; Long Memory; Fractional APARCH Pages: 17-33 (search for similar items in EconPapers)
JEL-codes: G10 G11 G13 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:vls:finstu:v:25:y:2021:i:4:p:17-33

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