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Estimating Hedging Effectiveness Using Variance Reduction And Risk-Return Approaches: Evidence From National Stock Exchange Of India

Author

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  • Mandeep Kaur
  • Kapil Gupta

    (I.K. Gujral Punjab Technical University, India
    I.K. Gujral Punjab Technical University, India)

Abstract

The present study examines hedging effectiveness of futures contracts in India by using variance reduction approach and risk-return approach by applying eight econometric models. It is observed that OLS hedge ratio generates highest hedging effectiveness using variance reduction approach, whereas Naïve hedge ratio generates highest hedging effectiveness using risk-return approach. Overall, it is observed that time-invariant hedging model generates superior hedging effectiveness as compared to time-variant hedging model.

Suggested Citation

  • Mandeep Kaur & Kapil Gupta, 2019. "Estimating Hedging Effectiveness Using Variance Reduction And Risk-Return Approaches: Evidence From National Stock Exchange Of India," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(4), pages 149-169.
    • Handle: RePEc:cpn:umkcjf:v:8:y:2019:i:4:p:149-169
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    References listed on IDEAS

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    Cited by:

    1. Sharma, Udayan & Karmakar, Madhusudan, 2023. "Measuring minimum variance hedging effectiveness: Traditional vs. sophisticated models," International Review of Financial Analysis, Elsevier, vol. 87(C).

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