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Determination of Optimal Hedging Strategy for Index Futures: Evidence from Turkey

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  • Onur Olgun
  • I. Hakan Yetkiner

Abstract

This paper aims to determine optimal hedge strategy for the Istanbul Stock Exchange (ISE)-30 stock index futures in Turkey by comparing hedging performance of constant and time-varying hedge ratios under mean-variance utility criteria. We employ standard regression and bivariate GARCH frameworks to estimate constant and time-varying hedge ratios respectively. The Turkish case is particularly challenging since Turkey has one of the most volatile stock markets among emerging economies and the turnover ratio as a measure of liquidity is very high for the market. These facts can be considered to highlight the great risk and, therefore, the extra need for hedging in the Istanbul Stock Exchange (ISE). The empirical results from the study reveal that the dynamic hedge strategy outperforms the static and the traditional strategies.

Suggested Citation

  • Onur Olgun & I. Hakan Yetkiner, 2011. "Determination of Optimal Hedging Strategy for Index Futures: Evidence from Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 68-79, November.
    • Handle: RePEc:mes:emfitr:v:47:y:2011:i:6:p:68-79
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    Citations

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    Cited by:

    1. Sila Alan, Nazli & Karagozoglu, Ahmet K. & Korkmaz, Sibel, 2016. "Growing pains: The evolution of new stock index futures in emerging markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 1-16.
    2. Hong Vo, Duc & Van Nguyen, Phuc & Minh Nguyen, Ha & The Vo, Anh & Cong Nguyen, Thang, 2020. "Derivatives market and economic growth nexus: Policy implications for emerging markets," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    3. Lumengo Bonga-Bonga & Ekerete Umoetok, 2016. "The effectiveness of index futures hedging in emerging markets during the crisis period of 2008-2010: Evidence from South Africa," Applied Economics, Taylor & Francis Journals, vol. 48(42), pages 3999-4018, September.
    4. Atilgan, Yigit & Demirtas, K. Ozgur & Simsek, Koray D., 2016. "Derivative markets in emerging economies: A survey," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 88-102.

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