1. The effectiveness of index futures hedging in emerging markets during the crisis period of 2008-2010: Evidence from South Africa
- Author
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Ekerete Umoetok and Lumengo Bonga-Bonga
- Subjects
Economics and Econometrics ,Heteroscedasticity ,Financial economics ,Autoregressive conditional heteroskedasticity ,05 social sciences ,Equity (finance) ,jel:G13 ,jel:C58 ,Vector autoregression ,Autoregressive model ,0502 economics and business ,Economics ,emerging markets, optimal hedge ratio, South Africa, index futures hedging, Vector autoregression, Vector error-correction, GARCH ,050207 economics ,Volatility (finance) ,jel:C5 ,Emerging markets ,Futures contract ,050205 econometrics - Abstract
This paper provides an assessment of the comparative effectiveness of four econometric methods in estimating the optimal hedge ratio in an emerging equity market, particularly the South African equity and futures markets. The paper bases the effectiveness of hedging on volatility reduction and minimisation of the coefficient of variation of hedged returns as well as risk-aversion based utility maximisation. The empirical analysis shows that the single equation method estimated by ordinary least squares is the most effective over daily hedging periods. However, the vector error-correction method and multivariate GARCH methods are most effective over weekly and monthly hedging periods.
- Published
- 2016
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