Hedge ratio on Markov regime-switching diagonal Bekk–Garch model

Yan Zhipeng and Li Shenghong

Finance Research Letters, 2018, vol. 24, issue C, 49-55

Abstract: China's stock market is known with quick change and violent fluctuation in recent years. This paper develops a Markov regime switching diagonal Bekk–Garch model, enabling parameters to be state dependent upon the regime of market. The empirical results show that different states exist. The high volatility regime has a lower state probability, while the low volatility regime has a higher state probability. The likelihood value show the regime-switching diagonal Bekk–Garch model fits the sample better. Both comparisons of hedge performance in and out-of-sample indicate that a regime-switching Bekk–Garch model is the optimal hedge strategy, followed by Bekk–Garch and OLS model.

Keywords: Stock index futures; Hedge ratio; Regime-switching; Garch models (search for similar items in EconPapers)
JEL-codes: C32 C58 G13 G17 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612317302118
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:49-55

DOI: 10.1016/j.frl.2017.06.015

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).