Stock index futures hedging in the emerging Malaysian market

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dc.contributor.authorPok, Wee Ching
dc.contributor.authorPoshakwale, Sunil S.
dc.contributor.authorFord, J. L.
dc.date.accessioned2009-11-06T10:37:25Z
dc.date.available2009-11-06T10:37:25Z
dc.date.issued2009-11-06T10:37:25Z
dc.description.abstractThe paper investigates hedging effectiveness of dynamic and constant models in the emerging market of Malaysia where trading information is not readily available and market liquidity is lower compared to the developed equity markets. Using daily data from December 1995 to April 2001 and bivariate GARCH(1,1) and TGARCH models, the paper uses differing variance–covariance structures to obtain hedging ratios. Performance of models is compared in terms of variance reduction and expected utility levels for the full sample period as well as the three sub-periods which encompass the Asian financial crisis and introduction of new capital control measures in Malaysia. Findings show that rankings of the hedging models change for the in-sample period depending on evaluation criteria used. TGARCH based models provide better hedging performance but only in the period of higher information asymmetry following the imposition of capital controls in Malaysia. Overall, despite the structural breaks caused by the Asian financial crisis and new capital control regulations, out of sample hedging performance of dynamic GARCH models in the Malaysian emerging market is as good as the one reported for the highly developed markets in the previous literature. The findings suggest that changes in the composition of market agents caused by large scale retreat of foreign investors following the imposition of capital control regulations do not seem to have any material impact on the volatility characteristics of the Malaysian emerging market.en_UK
dc.identifier.issn1044-0283
dc.identifier.urihttp://hdl.handle.net/1826/3926
dc.subjectMalaysiaen_UK
dc.subjectemerging marketen_UK
dc.subjectspot and futures volatilityen_UK
dc.subjectbivariate GARCH and TGARCHen_UK
dc.subjectvariance reductionen_UK
dc.titleStock index futures hedging in the emerging Malaysian marketen_UK
dc.typeAudio fileen_UK
dc.typePostprinten_UK

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