An econometric investigation of hedging performance of stock index futures in Korea: dynamic versus static hedging

Mohammad Hasan, Taufiq Choudhry and Yuanyuan Zhang

International Journal of Banking, Accounting and Finance, 2020, vol. 11, issue 2, 227-253

Abstract: Employing daily data of stock index and stock index futures, this paper empirically investigates the hedging effectiveness of time-varying hedge ratios of emerging futures markets using South Korea as a case. This paper employs eight variants of GARCH models to estimate the hedge ratios along with the conventional methods, and compares the hedging effectiveness of these estimated hedge ratios across model specifications using both within-sample and out-of-sample forecasting performances. In contrast to recent research findings, hedging performance based on a conventional OLS method outperforms the GARCH class models.

Keywords: stock index futures; time-varying hedge ratio; GARCH model; hedging effectiveness; Korea. (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ids:injbaf:v:11:y:2020:i:2:p:227-253

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