HEDGING EFFECTIVENESS OF CROSS-LISTED NIFTY INDEX FUTURES

K. Kiran Kumar () and Shreya Bose ()
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K. Kiran Kumar: Indian Institute of Management, Indore, Madhya Pradesh 453331, India
Shreya Bose: Department of Financial Mathematics, Florida State University, Tallahassess, USA

Global Economy Journal (GEJ), 2019, vol. 19, issue 02, 1-12

Abstract: This paper investigates the hedging effectiveness of cross-listed Nifty Index futures and compares the performance of constant and dynamic optimal hedging strategies. We use daily data of Nifty index traded on the National Stock Exchange (NSE), India and cross-listed Nifty futures traded on the Singapore Stock Exchange (SGX) for a period of six years from July 15, 2010 to July 15, 2016. Various competing forms of Multivariate Generalised Autoregressive Conditional Heteroscedasticity (MGARCH) models, such as Constant Conditional Correlation (CCC) and Dynamic Conditional Correlation (DCC), have been employed to capture the time-varying volatility. The results clearly depict that dynamic hedge ratios outperform traditional constant hedge ratios with the DCC–GARCH model being the most efficient with maximum variance reduction from the unhedged portfolio.

Keywords: Stock index futures; optimal hedging strategies; MGARCH (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S2194565919500118

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