Hedging Effectiveness of Applying Constant and Time Varying Hedge Ratio:Evidence from Taiwan Stock and Stock Index Futures

• Main Authors: Tseng, Chun-Yi, 曾俊益
• Other Authors: Chen, Dar-Hsin
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/12204150239952412117

碩士 === 國立臺北大學 === 經濟學系 === 99 === This paper investigates the hedging effectiveness of the Taiwan Futures Exchange (TAIFEX) stock index futures contract using daily settlement prices for the period July 21, 1998 to December 31, 2010. The minimum variance hedge ratios (MVHRs) are estimated from the ordinary least squares regression model (OLS), the vector error correction model (VECM), the generalized autoregressive conditional heteroskedasticity model (GARCH), the threshold GARCH model (TGARCH), and the bivariate GARCH model (BGARCH). We use a rolling sample method to generate the time-varying MVHRs used for the out-of-sample period, accompanied with different hedge horizons, and compare their hedging performance by hedging effectiveness and risk-return trade-off. In a one-day hedge horizon, the TGARCH model generates the greatest variance reduction, but the OLS model provides the biggest rate of return; in a longer hedge horizon, the OLS generates the largest variance reduction, but the BGARCH model provides the biggest rate of return. The appropriate model to measure the MVHRs depends on the degree of risk aversion and hedge horizon.