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Can Crude Oil Futures be the Good Hedging Tool for Tyre Equities? Evidence from India

Author

Listed:
  • K. Abhaya Kumar

    (Department of Business Administration, Mangalore Institute of Technology & Engineering, Mangalore, Karnataka, India,)

  • Prakash Pinto

    (Department of Business Administration, St. Joseph Engineering College, Mangalore, Karnataka, India,)

  • Iqbal Thonse Hawaldar

    (Department of Accounting and Finance, College of Business Administration, Kingdom University, Sanad, Bahrain,)

  • K. G. Ramesh

    (Department of Business Administration, Sahyadri College of Engineering & Management, Mangalore, Karnataka, India.)

Abstract

This article examines the cross-hedging performance of crude futures against the tyre equity futures to hedge the tyre equity stocks. Three multivariate conditional volatility models, namely constant conditional correlation (CCC), dynamic conditional correlation (DCC) and diagonal BEKK are applied. Using the conditional covariance and variance from the MGARCH estimates, the optimal hedge ratios (OHRs) are computed. The results of this study show that the volatility spillover exists between the returns of crude oil futures and tyre equity. However, for tyre equities, the best cross hedge is tyre equity futures rather than crude futures. All the MGARCH estimates show better hedging possibility with tyre equity futures, particularly MRF futures.

Suggested Citation

  • K. Abhaya Kumar & Prakash Pinto & Iqbal Thonse Hawaldar & K. G. Ramesh, 2021. "Can Crude Oil Futures be the Good Hedging Tool for Tyre Equities? Evidence from India," International Journal of Energy Economics and Policy, Econjournals, vol. 11(6), pages 523-537.
    • Handle: RePEc:eco:journ2:2021-06-60
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    References listed on IDEAS

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    More about this item

    Keywords

    CCC; Crude future; DCC; Diagonal BEKK; Tyre equity; Tyre equity futures;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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