Effectiveness of a Time-Varying and Constant Hedge Ratio: Evidence from Gold Coin’s Futures Contracts Traded in Iran Mercantile Exchange

Document Type : Research Paper

Authors

1 Professor, Department of Theoretical Economics, Faculty of Economics, University of Tehran

2 M.Sc. in economics, Faculty of Economics, University of Tehran

Abstract

In emerging markets, the growth of capital and commodity futures market would depend on effectiveness of derivatives in managing risk. For managing risk, understanding optimal hedge ratio is critical for devising effective hedging strategy. The present paper estimates the minimum variance optimal hedge ratio of gold coin's futures contracts in Iran, by using various econometric methods. It is found that by putting futures contract in the portfolio, the risk is significantly reduced. In the comparison of the estimated optimal hedge ratio among various econometric methods, CCC_GARCH ,OLS and VECM  have more ability in risk reduction as compared to others. Contrary to expectation, by applying conditional variance-covariance matrix, Garch model is not more efficient compared to other approaches. One reason could be the short history of the futures market in Iran which causes low efficiency in delivering the right information to investors is the market.
JEL Classification: G15, C01, C22, C11

Keywords

Main Subjects

References

ابراهیمی، محسن و قنبری، علیرضا (1385). مدیریت ریسک نوسانات قیمت نفت در ایران، مجله‌ی نامه‌ی مفید،57، 162-139.
جعفری‌کیا، شبنم (1391). پیش‌بینی و برآورد نسبت بهینه‌ی پوشش ریسک برای بازار آتی سکه‌ی طلا در ایران با استفاده از مدل‌های اقتصادسنجی و شبکه‌ی عصبی مصنوعی، پایان نامه‌ی کارشناسی ارشد، دانشکده‌ی اقتصاد دانشگاه تهران.
 جلالی نایینی، سید احمد رضا، کاظمی منش، مریم (1383). بررسی تغییرات نرخ بهینه‌ی ریسک در بازار نفت، مجله‌ی مطالعات اقتصاد انرژی، 251، 27-3.
درخشان، مسعود (1383). مشتقات و مدیریت ریسک در بازارهای نفت، موسسه‌ی مطالعات بین المللی انرژی.
میرزاپور، اکبر (1391). نسبت بهینه‌ی پوشش ریسک در قراردادهای آتی سکه‌ی بهار آزادی مورد معامله در بورس کالای ایران، رساله‌ی دکتری، دانشکده‌ی اقتصاد دانشگاه علامه طباطبایی.
Asche, F., & Guttormsen, A. (2002). Lead Lag Relationship between Futures and Spot Prices, Institute for Research in Economics and Business Administration Bergen, Working Paper.2-22.
Bollerslev, T., Engle, R., & Wooldridge, J. (1988). A capital asset pricing model with time varying covariances. Journal of Political Economy, 96, 116–131.
Chen, S. S., Lee, C. F., & Shrestha, K. (2003). Futures hedge ratios: a review, The Quarterly Review of Economics and Finance, 43, 433–465.
Chou, W. L., Fan, K. K., & Lee, C. F. (1996). Hedging with the Nikkei index futures: The conventional model versus the error correction model, Quarterly Review of Economics and Finance, 36, 495–505.
Ederington, L. H. (1979). The hedging performance of the new futures markets, Journal of Finance, 34, 157–170.
Floros, Ch. (2007). Lead-lag relationship between futures and spot markets in Greece, International Research Journal of Finance and Economics, 7,168-173.
Hull, J. (2007). Options futures and other derivatives, Prentice Hall.
Johnson, L. L. (1960). The theory of hedging and speculation in commodity futures, Review of Economic Studies, 27, 139–151.
Kostika, E., & Markellos, R. (2013). Optimal Hedge Ratio Estimation and Effectiveness Using ARCD, Journal of Forecasting,32, 41–50.
Kroner, K. F., & Sultan, J. (1993). Time-varying distributions and dynamic hedging with foreign currency futures, Journal of Financial and Quantitative Analysis, 28, 535–551.
Lien, D., & Luo, X. (1993). Estimating multiperiod hedge ratios in cointegrated markets, Journal of Futures Markets, 13, 909–920.
Longin, François M. (1999). Optimal margin level in futures markets: Extreme price movements, Journal of Futures Markets, 19, 2,  127–152.
Myers, R. J., & Thompson, S. R. (1989). Generalized optimal hedge ratio estimation, American Journal of Agricultural Economics, 71, 858-868.
 
Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 52, Issue 3 - Serial Number 120
October 2017
Pages 711-734

Files

History

  • Receive Date: 21 February 2016
  • Revise Date: 30 March 2017
  • Accept Date: 23 May 2017

Share

How to cite

Statistics