ESTIMATING HEDGING EFFECTIVENESS USING VARIANCE REDUCTION AND RISK-RETURN APPROACHES: EVIDENCE FROM NATIONAL STOCK EXCHANGE OF INDIA
Mandeep Kaur and
Kapil Gupta ()
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Kapil Gupta: I.K. Gujral Punjab Technical University, India
Copernican Journal of Finance & Accounting, 2019, vol. 8, issue 4, 149-169
The present study examines hedging effectiveness of futures contracts in India by using variance reduction approach and risk-return approach by applying eight econometric models. It is observed that OLS hedge ratio generates highest hedging effectiveness using variance reduction approach, whereas Naïve hedge ratio generates highest hedging effectiveness using risk-return approach. Overall, it is observed that time-invariant hedging model generates superior hedging effectiveness as compared to time-variant hedging model.
Keywords: optimal hedge ratio; hedging effectiveness; GARCH; OLS; equity futures market (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cpn:umkcjf:v:8:y:2019:i:4:p:149-169
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