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


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

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


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


Main Subjects

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