Abstract
This article examines hedging in South African stock index futures market. The hedge ratios are estimated by six econometric techniques: the standard OLS regression, simple and vector error correction models, the ECM with generalised autoregressive heteroskedasticity (GARCH), as well as time-varying CCC-ARCH and Diag-BEKK ARCH models. The empirical results show that the ECM-GARCH model (capturing volatility clustering) provides best hedging ratios, while CCC-ARCH is superior to OLS, ECM and VECM. We conclude that there is not a unique model specification for measuring hedge ratios. For each market (emerging and mature), a model's comparative analysis must be conducted in order to extract the best performing model.
Original language | English |
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Pages (from-to) | 285-304 |
Number of pages | 20 |
Journal | Journal of Emerging Market Finance |
Volume | 9 |
Issue number | 3 |
DOIs | |
Publication status | Published - Dec 2010 |
Keywords
- ECM
- futures
- GARCH
- hedge ratio
- Hedging
- OLS
- SAFEX
- VECM