The Study of Basis Effects on the Hedging Performance in Taiwan Stock Markets

• Main Authors: Lin Hui Liang, 林惠娘
• Other Authors: Kai Li Wang
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/75175722905132791557

碩士 === 東海大學 === 財務金融學系碩士在職專班 === 99 === With the TAIFEX futures being hedging tool, the paper verifies whether hedging model accommodating basis improves the hedging performance in contrast to ordinary hedging model. We also examine whether hedging performance varies with different lengths of hedging period. The study further identifies the effects of positive and negative basis on hedging performance in Taiwan stock markets. As the basis risk may affect trading decisions of market investors and hedgers, our interest is to distinguish whether magnitude of basis has an effect on hedging strategy and hedging performance. Applying the OLS model, we investigate the effects of basis changes on returns of Taiwan stock index. The daily data covers from January, 2, 2001 to December 31, 2010. We compare various hedging performances under different hedging models both in- and out- of sample. The results show that the hedging model including basis has the smallest variance and superior hedging performance comparing with other models, no matter in- and out- of sample or within different hedging terms. We conclude that the hedging model taking basis into account achieves better hedging ratio, and basis has significantly positive impact on the stock markets. Changes in basis are important factors for stock market returns. Moreover, relative to negative basis, the effect of positive basis on Taiwan stock returns is more significant. Regarding the hedging ratios, the out-of-sample dynamic hedging outperforms the in-sample constant hedging, implying the importance of dynamic models to the hedging performance. Results of both in- and out- of samples demonstrate that 5-day hedging period shows the best hedging performance. Therefore, the hedging model with basis significantly increases short-term hedging performance. Based on the above findings, the hedging model having basis obtains more appropriate hedging ratio and superior hedging performance.