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Year 2015, Volume: 4 Issue: 3, 0 - 0, 29.09.2015

Hakan Er , Aysegul Ates

Abstract

References

  • • Altman, E. I., B. Jacquillat and M. Levasseur, 1974, “Comparative Analysis of Risk Measures: France and the United States,” Journal of Finance 29, 1495-1511.
  • • Baesel, J. B.,1974, “On the Assesment of Risk: Some Further Considerations,” The Journal of Finance 29, 1491–1494.
  • • Bhaduri, S.N. and S.R.S. Durai, 2008, "Optimal hedge ratio and hedging effectiveness of stock index futures: evidence from India," Macroeconomics and Finance in Emerging Market Economies 1(1), 121-134.
  • • Blume, M. E., 1971, “On the Assessment of Risk,” Journal of Finance, 1-10.
  • • Blume, M., 1975, “Betas and Their Regression Tendencies,” Journal of Finance 30, 785-795.
  • • Bos, T. and Newbold, P., 1984, “An empirical investigation of the possibility of stochastic systematic risk in the market model,” Journal of Business, 7, 35–41.
  • • Brooks, R.D., Faff, R.W. and Lee, J.H.H., 1992, “The form of time variation of systematic risk: Some Australian evidence,” Applied Financial Economics, 2, 191– 98.
  • • Bowman, C., 2004, “Cross-hedging effectiveness in emerging markets experiencing structural change” Working paper, Australia National University. Retrieved from www.ssrn.com
  • • Brooks, R.D., R.W. Faff, and J.H.H. Lee,1994, “Beta stability and portfolio formation,” Pacific Basin Finance Journal 2, 463–79.
  • • Butterworth, D. and P. Holmes, 2001, “The hedging effectiveness of stock index futures: evidence for the FTSE-100 and FTSE-Mid250 indexes traded in the UK,” Applied Financial Economics 11(1), 57-68.
  • • Cohen, K., S. Maier, R. Schwartz, and D. Witcomb, 1985, The Microstructure of Securities Markets. Prentice Hall.
  • • Collins, D.W., J. Ledolter, and J. Rayburn, 1987, “Some further evidence on the stochastic properties of systematic risk,” Journal of Business 60, 425–48.
  • • Çinko, E. and M. Avcı, 2010, “The hedge period length and the hedging effectiveness: An application on TURKDEX-ISE 30 Index Futures Contracts,” Journal of Yaşar University 5(18), 3081-3090.
  • • Daves, P. R., M. C. Ehrhardt , and R. A. Kunkel, 2000, “Estimating systematic risk: the choice of return interval and estimation period,” Journal of Financial and Strategic Decisions 13(1), 7-13.
  • • Er, H., & A. Hushmat, 2012, “The Impact of the Leverage Provided by the Futures on the Performance of Technical Indicators: Evidence from Turkey,” International Journal of Economics and Finance Studies 4(2), .
  • • Faff, R.W. and R.D. Brooks, 1996, “Further evidence on the relationship between beta stability and the length of the length of estimation period,” Advances in Investment Analysis and Portfolio Management
  • • Figlewski, S., 1984, “Hedging performance and basis risk in stock index futures,” The Journal of Finance 39(3), 657-669.
  • • Floros, C., and D. Vougas, 2006, "Hedging effectiveness in Greek stock index futures market, 1999-2001." International Research Journal of Finance and Economics 5, 7-18.
  • • Frank J. F, and J.C. Francis, 1978, “Beta as a Random Coefficient,” Journal of Financial and Quantitative Analysis 13, 101-116.
  • • Handa, P., Kothari, S. P., & Wasley, C. (1989). The relation between the return interval and betas: Implications for the size effect. Journal of Financial Economics, 23(1), 79-100.
  • • Holmes, P., 1996, “Stock index futures hedging: hedge ratio estimation, duration effects, expiration effects and hedge ratio stability,” Journal of Business Finance & Accounting 23(1), 63-77.
  • • Howard, C. T., & , L. J. D'Antonio, 1984, “A risk-return measure of hedging effectiveness,” Journal of Financial and Quantitative Analysis 19(01), 101-112.
  • • Kavussanos, M.G., and I.D. Visvikis, 2008, "Hedging effectiveness of the Athens stock index futures contracts." European Journal of Finance, 14(3), 243-270.
  • • Kim, D., 1999, “Sensitivity of Systematic Risk Estimates to the Return Measurement Interval under Serial Correlation,” Review of Quantitative Finance and Accounting 12, 49–64
  • • Lien, D., 1996, “The effect of the cointegration relationship on futures hedging: A note,” Journal of Futures Markets 16, 773–780.
  • • Lindahl, M., 1992, “Minimum variance hedge ratios for stock index futures: duration and expiration effects” Journal of Futures Markets 12(1), 33-53.
  • • Moosa, I., 2003, “The sensitivity of optimal hedge ratio to model specification.” Financial Letters 1, 15–20.
  • • Olgun, O., & I. H. Yetkiner, 2011, “Determination of Optimal Hedging Strategy for Index Futures: Evidence from Turkey,” Emerging Markets Finance and Trade 47(6), 68-79.
  • • Roenfeldt, R., 1978, “Further Evidence on the Stationarity of Beta Coefficients,” Journal of Financial and Quantitative Analysis March, 11-21.
  • • Sim, A.B., and R. Zurbruegg, 2001, "Dynamic hedging effectiveness in South Korean index futures and the impact of the Asian financial crisis," Asia-Pacific Financial Markets 8(3), 237-258.
  • • Sunder, S., 1980, "Stationarity of market risk: Random coefficients tests for individual stocks." Journal of Finance, 883-896.

THE HEDGING EFFECTIVENESS AND THE STABILITY OF THE OPTIMAL HEDGE RATIOS: EVIDENCE FOR THE ISTANBUL STOCK EXCHANGE 30 CONTRACT

Year 2015, Volume: 4 Issue: 3, 0 - 0, 29.09.2015

Hakan Er , Aysegul Ates

Abstract

n this paper we investigate ex ante hedging effectiveness of the Istanbul Stock Exchange 30 (ISE 30) stock index futures contract covering the period January 2007-December 2014. An optimal hedge ratio is typically calculated by regressing historical spot prices, spot price changes or spot returns on futures prices, futures price changes or returns. The slope of the regression is then used as the optimal hedge ratio. However, no guidelines are provided on what return interval and estimation period should be chosen for the calculation of returns. The empirical research has shown that hedge ratio estimates are not invariant to the return measurement interval or the estimation period. This study finds that although the daily returns for the estimation of hedge ratio provides the best ex-post performance, ex-ante tests favor hedge ratios calculated with longer return intervals and estimation periods. While one should expect greater precision for longer estimation periods, results of this study do not provide satisfactory evidence in favor of this argument.

Keywords

Futures In this paper we investigate ex ante hedging effectiveness of the Istanbul Hedging Effectives Stock Exchange 30 (ISE 30) stock index futures contract covering the period

References

  • • Altman, E. I., B. Jacquillat and M. Levasseur, 1974, “Comparative Analysis of Risk Measures: France and the United States,” Journal of Finance 29, 1495-1511.
  • • Baesel, J. B.,1974, “On the Assesment of Risk: Some Further Considerations,” The Journal of Finance 29, 1491–1494.
  • • Bhaduri, S.N. and S.R.S. Durai, 2008, "Optimal hedge ratio and hedging effectiveness of stock index futures: evidence from India," Macroeconomics and Finance in Emerging Market Economies 1(1), 121-134.
  • • Blume, M. E., 1971, “On the Assessment of Risk,” Journal of Finance, 1-10.
  • • Blume, M., 1975, “Betas and Their Regression Tendencies,” Journal of Finance 30, 785-795.
  • • Bos, T. and Newbold, P., 1984, “An empirical investigation of the possibility of stochastic systematic risk in the market model,” Journal of Business, 7, 35–41.
  • • Brooks, R.D., Faff, R.W. and Lee, J.H.H., 1992, “The form of time variation of systematic risk: Some Australian evidence,” Applied Financial Economics, 2, 191– 98.
  • • Bowman, C., 2004, “Cross-hedging effectiveness in emerging markets experiencing structural change” Working paper, Australia National University. Retrieved from www.ssrn.com
  • • Brooks, R.D., R.W. Faff, and J.H.H. Lee,1994, “Beta stability and portfolio formation,” Pacific Basin Finance Journal 2, 463–79.
  • • Butterworth, D. and P. Holmes, 2001, “The hedging effectiveness of stock index futures: evidence for the FTSE-100 and FTSE-Mid250 indexes traded in the UK,” Applied Financial Economics 11(1), 57-68.
  • • Cohen, K., S. Maier, R. Schwartz, and D. Witcomb, 1985, The Microstructure of Securities Markets. Prentice Hall.
  • • Collins, D.W., J. Ledolter, and J. Rayburn, 1987, “Some further evidence on the stochastic properties of systematic risk,” Journal of Business 60, 425–48.
  • • Çinko, E. and M. Avcı, 2010, “The hedge period length and the hedging effectiveness: An application on TURKDEX-ISE 30 Index Futures Contracts,” Journal of Yaşar University 5(18), 3081-3090.
  • • Daves, P. R., M. C. Ehrhardt , and R. A. Kunkel, 2000, “Estimating systematic risk: the choice of return interval and estimation period,” Journal of Financial and Strategic Decisions 13(1), 7-13.
  • • Er, H., & A. Hushmat, 2012, “The Impact of the Leverage Provided by the Futures on the Performance of Technical Indicators: Evidence from Turkey,” International Journal of Economics and Finance Studies 4(2), .
  • • Faff, R.W. and R.D. Brooks, 1996, “Further evidence on the relationship between beta stability and the length of the length of estimation period,” Advances in Investment Analysis and Portfolio Management
  • • Figlewski, S., 1984, “Hedging performance and basis risk in stock index futures,” The Journal of Finance 39(3), 657-669.
  • • Floros, C., and D. Vougas, 2006, "Hedging effectiveness in Greek stock index futures market, 1999-2001." International Research Journal of Finance and Economics 5, 7-18.
  • • Frank J. F, and J.C. Francis, 1978, “Beta as a Random Coefficient,” Journal of Financial and Quantitative Analysis 13, 101-116.
  • • Handa, P., Kothari, S. P., & Wasley, C. (1989). The relation between the return interval and betas: Implications for the size effect. Journal of Financial Economics, 23(1), 79-100.
  • • Holmes, P., 1996, “Stock index futures hedging: hedge ratio estimation, duration effects, expiration effects and hedge ratio stability,” Journal of Business Finance & Accounting 23(1), 63-77.
  • • Howard, C. T., & , L. J. D'Antonio, 1984, “A risk-return measure of hedging effectiveness,” Journal of Financial and Quantitative Analysis 19(01), 101-112.
  • • Kavussanos, M.G., and I.D. Visvikis, 2008, "Hedging effectiveness of the Athens stock index futures contracts." European Journal of Finance, 14(3), 243-270.
  • • Kim, D., 1999, “Sensitivity of Systematic Risk Estimates to the Return Measurement Interval under Serial Correlation,” Review of Quantitative Finance and Accounting 12, 49–64
  • • Lien, D., 1996, “The effect of the cointegration relationship on futures hedging: A note,” Journal of Futures Markets 16, 773–780.
  • • Lindahl, M., 1992, “Minimum variance hedge ratios for stock index futures: duration and expiration effects” Journal of Futures Markets 12(1), 33-53.
  • • Moosa, I., 2003, “The sensitivity of optimal hedge ratio to model specification.” Financial Letters 1, 15–20.
  • • Olgun, O., & I. H. Yetkiner, 2011, “Determination of Optimal Hedging Strategy for Index Futures: Evidence from Turkey,” Emerging Markets Finance and Trade 47(6), 68-79.
  • • Roenfeldt, R., 1978, “Further Evidence on the Stationarity of Beta Coefficients,” Journal of Financial and Quantitative Analysis March, 11-21.
  • • Sim, A.B., and R. Zurbruegg, 2001, "Dynamic hedging effectiveness in South Korean index futures and the impact of the Asian financial crisis," Asia-Pacific Financial Markets 8(3), 237-258.
  • • Sunder, S., 1980, "Stationarity of market risk: Random coefficients tests for individual stocks." Journal of Finance, 883-896.
There are 31 citations in total.

Details

Journal Section Articles
Authors

Hakan Er

Aysegul Ates This is me

Publication Date September 29, 2015
Published in Issue Year 2015 Volume: 4 Issue: 3

Cite

APA Er, H., & Ates, A. (2015). THE HEDGING EFFECTIVENESS AND THE STABILITY OF THE OPTIMAL HEDGE RATIOS: EVIDENCE FOR THE ISTANBUL STOCK EXCHANGE 30 CONTRACT. Journal of Business Economics and Finance, 4(3). https://doi.org/10.17261/Pressacademia.2015313057

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