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Evaluating the Hedging Effectiveness in Crude Palm Oil Futures Market: A Bivariate Threshold GARCH Model
| Content Provider | Semantic Scholar |
|---|---|
| Author | Go, You-How Lau, Wee-Yeap |
| Copyright Year | 2014 |
| Abstract | This paper examines whether there is a significant change in hedging effectiveness on Crude Palm Oil (CPO) futures market from January 1986 to October 2010. Three models comprise of naive, conventional and bivariate have been evaluated. As the volatility of spot and futures markets is not similar across time, both markets exhibit asymmetric information transmission. Our results show firstly that a bivariate VAR(16)-threshold(1)-GARCH(1,1) model is found to be an adequate model to capture volatility spillover between the two markets. Secondly, time-varying hedge ratio exhibits high volatility especially during Asian financial crisis 1997-98, followed by the global financial crisis in 2008. Thirdly, the bivariate model performs better than others in risk reduction. It is imperative to incorporate volatility spillover into conditional variance and covariance equations as to ensure the accuracy of estimation. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://umexpert.um.edu.my/file/publication/00008643_108776.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
