Hedge Ratios in South African Stock Index Futures

Degiannakis, Stavros and Floros, Christos (2010): Hedge Ratios in South African Stock Index Futures. Published in: Journal of Emerging Market Finance , Vol. 3, No. 9 (2010): pp. 285-304.

Abstract

This paper examines hedging in South African stock index futures market. The hedge ratios are estimated by six econometric techniques: the standard OLS regression, simple and vector error correction models, the ECM with generalised autoregressive heteroskedasticity (GARCH) as well as time-varying CCC-ARCH and Diag-BEKK ARCH models. The empirical results show that the ECM-GARCH model (capturing volatility clustering) provides best hedging ratios, while CCC-ARCH is superior to OLS, ECM and VECM. We conclude that there is not a unique model specification for measuring hedge ratios. For each market (emerging and mature), a model’s comparative analysis must be conducted in order to extract the best performing model.

• Item Type: MPRA Paper
• Language: English
• Keywords: Hedging, Hedge Ratio, Futures, SAFEX, OLS, ECM, VECM, GARCH
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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