HEDGE RATIO AND HEDGING EFFICIENCY: EVIDENCE FROM INDIAN DERIVATIVE MARKET
HEDGE RATIO AND HEDGING EFFICIENCY: EVIDENCE FROM INDIAN DERIVATIVE MARKET

Summary/Abstract: This paper examines the hedge ratio & hedging effectiveness of S&P CNX Nifty stock index futures, Gold futures and Crude Oil futures contract of Indian derivative market for the period September 2008 to September 2010 by using conventional OLS, VAR, VECM and VAR-MGARCH models. This paper also compares the performance of time varying hedge ratios with constant hedge ratios by considering alternative models for estimating a hedge ratio that minimizes the variance of returns and takes care of time-variance. The result suggests that VAR-MGARCH model estimates of time varying hedge ratio provide highest variance reduction as compared to other models. These findings are encouraging to risk managers dealing with Indian Derivative markets.

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