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Time-Varying Structure of the Optimal Hedge Ratio for Emerging Markets

Author

Listed:
  • Metin Tetik

    (UÅŸak University)

  • Ercan Özen

    (UÅŸak University)

Abstract

Emerging markets are more exposed to risk than developed markets. Therefore, they require risk management using futures market instruments. This study aims to determine the hedging effectiveness of the spot index market risks in the stock index futures market in Brazil, Russia, India, South Africa, and Turkey. Measuring the hedging effectiveness level of futures markets is vital for these countries because investors must remain in the stock markets for the sustainability of the financial markets and economies. Weekly closing data for the period from January 2009 to October 2021 were analyzed via a dynamic method referred to as flexible least squares (FLS). Although the FLS results show that futures transactions provide high hedging effectiveness for all countries within the scope of this study, country-specific conditions may reduce the hedging effectiveness.

Suggested Citation

  • Metin Tetik & Ercan Özen, 2022. "Time-Varying Structure of the Optimal Hedge Ratio for Emerging Markets," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(4), pages 521-537, December.
    • Handle: RePEc:aic:saebjn:v:69:y:2022:i:4:p:521-537:n:7
    as

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    References listed on IDEAS

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