On the Effectiveness of Dynamic Stock Index Portfolio Hedging: Evidence from Emerging Markets Futures

Mohammad S. Hasan and Taufiq Choudhry

Chapter 16 in Advances in Financial Risk Management, 2013, pp 364-390 from Palgrave Macmillan

Abstract: Abstract Since the introduction of financial derivatives markets in developed countries during the 1970s and 1980s, and the later development in emerging markets during the 1990s, there has been much interest over the last three decades towards the modeling and forecasting of the optimal hedge ratios (OHR) and alternative hedging strategies applied to the commodity and financial futures.1 It is now well known that derivatives markets perform useful functions of price discovery, hedging, speculation and risk-sharing (see Working, 1953; Johnson, 1960; Silber, 1985 and Fortune, 1989). Hedgers use these markets as a means to avoid the market risk associated with adverse price change in the related cash markets. Speculators take positions in derivative instruments in the hope that subsequent price movements will generate profits. Overall, investors are given the choice of altering their asset portfolios between cash and derivatives markets.

Keywords: GARCH Model; Hedging Strategy; Error Correction Term; Hedge Ratio; Stock Index Future (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-02509-8_16

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DOI: 10.1057/9781137025098_16

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