Munich Personal RePEc Archive

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.

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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.

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