| Summary: | 碩士 === 淡江大學 === 財務金融學系 === 90 === Hedging through trading futures is a process used to control or reduce the risk of adverse price changes. To control or reduce the risk of the portfolio, the hedger has to determine the optimal hedge ratio. This paper estimates the risk-minimizing futures hedge ratios for four types of stock index futures: S&P 500 index futures, Nikkei 225 index futures, MSCI Taiwan index futures and CAC 40 index futures. Spot and futures prices are first analyzed to adjust for non-stationarity and cointegration. It compares the hedging effectiveness of traditional model with time-varying model. OLS model, error correction model, univariate GARCH, bivariate GARCH model and Kalman filter are involved. The main empirical results are as follows:
1.Using unit roots testing for price series, we find the significance of unit roots and thus the nonstationarity of the price series, so price series should be differenced to induce stationarity. We also find evidence of cointegration between spot and futures prices.
2.In terms of the within-sample hedging effectiveness comparison, the bivariate GARCH model outperforms all other hedging models except S&P500 stock index.
3.In the out-of-sample comparison, the results are not consistent. The univariate GARCH model outperforms all other hedging models in S&P 500. In Nikkei 225, the Kalman filter is superior to all other hedging models; In MSCI Taiwan index, the ECM model is the best; In CAC 40, the OLS model outperforms all other hedging models.
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