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Hedging Effectiveness Of Cross-Listed Nifty Index Futures

Author

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  • K. KIRAN KUMAR

    (Indian Institute of Management, Indore, Madhya Pradesh 453331, India)

  • SHREYA BOSE

    (Department of Financial Mathematics, Florida State University, Tallahassess, USA)

Abstract

This paper investigates the hedging effectiveness of cross-listed Nifty Index futures and compares the performance of constant and dynamic optimal hedging strategies. We use daily data of Nifty index traded on the National Stock Exchange (NSE), India and cross-listed Nifty futures traded on the Singapore Stock Exchange (SGX) for a period of six years from July 15, 2010 to July 15, 2016. Various competing forms of Multivariate Generalised Autoregressive Conditional Heteroscedasticity (MGARCH) models, such as Constant Conditional Correlation (CCC) and Dynamic Conditional Correlation (DCC), have been employed to capture the time-varying volatility. The results clearly depict that dynamic hedge ratios outperform traditional constant hedge ratios with the DCC–GARCH model being the most efficient with maximum variance reduction from the unhedged portfolio.

Suggested Citation

  • K. Kiran Kumar & Shreya Bose, 2019. "Hedging Effectiveness Of Cross-Listed Nifty Index Futures," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-12, June.
    • Handle: RePEc:wsi:gejxxx:v:19:y:2019:i:02:n:s2194565919500118
    DOI: 10.1142/S2194565919500118
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    Cited by:

    1. Sharma, Udayan & Karmakar, Madhusudan, 2023. "Measuring minimum variance hedging effectiveness: Traditional vs. sophisticated models," International Review of Financial Analysis, Elsevier, vol. 87(C).
    2. Mandeep Kaur & Kapil Gupta, 2019. "Estimating Hedging Effectiveness Using Variance Reduction And Risk-Return Approaches: Evidence From National Stock Exchange Of India," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(4), pages 149-169.

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