Title: An econometric investigation of hedging performance of stock index futures in Korea: dynamic versus static hedging

Authors: Mohammad Hasan; Taufiq Choudhry; Yuanyuan Zhang

Addresses: Kent Business School, University of Kent, UK ' Southampton Business School, University of Southampton, UK ' School of Securities and Futures, Southwestern University of Finance and Economics, Sichuan, China

Abstract: Employing daily data of stock index and stock index futures, this paper empirically investigates the hedging effectiveness of time-varying hedge ratios of emerging futures markets using South Korea as a case. This paper employs eight variants of GARCH models to estimate the hedge ratios along with the conventional methods, and compares the hedging effectiveness of these estimated hedge ratios across model specifications using both within-sample and out-of-sample forecasting performances. In contrast to recent research findings, hedging performance based on a conventional OLS method outperforms the GARCH class models.

Keywords: stock index futures; time-varying hedge ratio; GARCH model; hedging effectiveness; Korea.

DOI: 10.1504/IJBAAF.2020.106712

International Journal of Banking, Accounting and Finance, 2020 Vol.11 No.2, pp.227 - 253

Accepted: 25 Aug 2018
Published online: 31 Mar 2020 *

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