IDEAS home Printed from https://ideas.repec.org/a/icf/icfjfe/v09y2011i3p7-27.html
   My bibliography  Save this article

Hedging Effectiveness of Constant and Time-Varying Hedge Ratio in Indian Commodity Futures Markets: Evidence from the Multi-Commodity Exchange

Author

Listed:
  • P Srinivasan

Abstract

The present study examines the performance of various hedge ratios estimated under different econometric models, viz., the conventional OLS model, the VECM, and the Multivariate-GARCH (M-GARCH) with error correction model, and compares them in terms of variance minimization criterion over the in-sample and out-of-sample periods for the selected commodity market indices of Multi-Commodity Exchange (MCX), viz., MCXCOMDEX, MCXAGRI, MCXENERGY, and MCXMETAL. The data span of the study is from June 8, 2005 to September 31, 2010. Out of the total observations of the respective commodity market indices, the last 60 observations were used to facilitate out-of-sample hedge ratio performance comparison. By and large, the comparison of both in-sample and out-of-sample hedging performances in the present study indicates that the hedging strategy obtained from time-varying hedge ratio, which minimizes the conditional variance, performs better than the alternative models for all commodity market indices, except MCXAGRI. This implies that in selecting the most appropriate hedge ratio, the investor’s degree of risk aversion might play a relatively important role. This suggests that risk aversion being the major goal of an investor, the dynamic M-GARCH model hedging strategy performs best in reducing the conditional variance of the hedged portfolio.

Suggested Citation

  • P Srinivasan, 2011. "Hedging Effectiveness of Constant and Time-Varying Hedge Ratio in Indian Commodity Futures Markets: Evidence from the Multi-Commodity Exchange," The IUP Journal of Financial Economics, IUP Publications, vol. 0(3), pages 7-27, September.
  • Handle: RePEc:icf:icfjfe:v:09:y:2011:i:3:p:7-27
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Regmund, Wes & Robinson, John & Anderson, David, "undated". "Higher and More Stable Returns From Cottonseed," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252813, Southern Agricultural Economics Association.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:icf:icfjfe:v:09:y:2011:i:3:p:7-27. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (G R K Murty). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.