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Mutual Fund Portfolio Hedging Using Index Futures: An Empirical Analysis

Author

Listed:
  • Vishwas B.

    (Sri Sathya Sai Institute of Higher Learning, India)

  • N. Sivakumar

    (Sri Sathya Sai Institute of Higher Learning, India)

Abstract

The objective of the paper is to study the effectiveness of using index futures in hedging the returns of mutual fund portfolios. Using index futures of the National Stock Exchange of India, the study has attempted to hedge the returns of a professionally managed mutual fund portfolio for a period of over 10 years. The results of the study show that, while hedging using index futures does significantly reduce variance of returns, it does not significantly increase risk adjusted returns.

Suggested Citation

  • Vishwas B. & N. Sivakumar, 2016. "Mutual Fund Portfolio Hedging Using Index Futures: An Empirical Analysis," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(3), pages 203-210, August.
  • Handle: RePEc:ods:journl:v:5:y:2016:i:3:p:203-210
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    References listed on IDEAS

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    1. Lien, Donald & Yang, Li, 2008. "Asymmetric effect of basis on dynamic futures hedging: Empirical evidence from commodity markets," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 187-198, February.
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    3. Laws, Jason & Thompson, John, 2005. "Hedging effectiveness of stock index futures," European Journal of Operational Research, Elsevier, vol. 163(1), pages 177-191, May.
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    6. G.V. Satya Sekhar, 2016. "Ten Myths of Performance Evaluation of Mutual Funds: a Snapshot View," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(1), pages 59-65, February.
    7. G.V. Satya Sekhar, 2012. "Trends in global mutual funds: a future vision," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 1(1), pages 8-14.
    8. Saumitra Bhaduri & S. Raja Sethu Durai, 2008. "Optimal hedge ratio and hedging effectiveness of stock index futures: evidence from India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(1), pages 121-134.
    9. Chih‐Chiang Hsu & Chih‐Ping Tseng & Yaw‐Huei Wang, 2008. "Dynamic hedging with futures: A copula‐based GARCH model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(11), pages 1095-1116, November.
    10. Sushma Vegesna & Mihir Dash, 2014. "Efficiency of Public and Private Sector Banks in India," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 3(3), pages 183-187.
    11. Pok, Wee Ching & Poshakwale, Sunil S. & Ford, J.L., 2009. "Stock index futures hedging in the emerging Malaysian market," Global Finance Journal, Elsevier, vol. 20(3), pages 273-288.
    12. Figlewski, Stephen, 1984. " Hedging Performance and Basis Risk in Stock Index Futures," Journal of Finance, American Finance Association, vol. 39(3), pages 657-669, July.
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