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Estimation of hedge ratios in the south african futures exchange.
| Content Provider | CiteSeerX |
|---|---|
| Author | Dlamini, Sebenzile |
| Abstract | The primary objective for a risk-averse investor in the portfolio theory is to attain minimum-variance from a futures hedge strategy undertaken over a period with the investor predominantly ‘short ’ in futures. The Ordinary Least Square (OLS) regression model, Error Correction Model (ECM), Vector Error Correction Model (VECM) and the Generalised Autoregressive Conditional Heterescedasticity (GARCH 1,1) with error correction model are specified to estimate the risk-minimising hedge ratio. Focus is on the FTSE/JSE Top 40 index and its corresponding index futures in the South African futures exchange. It is discovered that the ECM and VECM models provide an equivalent hedge ratio although just like the OLS model, they offer an under-estimate of the spot position to be hedged. The ECM-GARCH (1, 1) dominates the other models with the largest hedge ratio hence it is potentially more efficient in reducing the risk of the spot price. |
| File Format | |
| Access Restriction | Open |
| Subject Keyword | South African Future Exchange Hedge Ratio Error Correction Model Equivalent Hedge Ratio Risk-averse Investor Portfolio Theory Ols Model Vecm Model Generalised Autoregressive Conditional Heterescedasticity Corresponding Index Future Hedge Ratio Hence Ordinary Least Square Spot Price Regression Model Risk-minimising Hedge Ratio Vector Error Correction Model Spot Position Primary Objective Ftse Jse Top |
| Content Type | Text |
