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Evidence on Hedging Effectiveness in Indian Derivatives Market

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  • Barik Kumar
  • M. Supriya

Abstract

The hedging effectiveness for bank futures and CNX nifty are evaluated in this study. The study is based on 9,569 observations of the daily data for these index futures. For evaluation ordinary least square, co-integrated ordinary least square, generalized auto-regressive conditional heteroscedasticity (1, 1), and constant correlation generalized auto-regressive conditional heteroscedasticity (1, 1) hedging methods are estimated and compared. Result shows that constant correlation generalized auto-regressive conditional heteroscedasticity (1, 1) is an efficient hedging method that maximizes investors’ utility function considering transaction costs. Therefore, investors can rely on this constant correlation generalized auto-regressive conditional heteroscedasticity (1, 1) hedging method. Copyright Springer Japan 2014

Suggested Citation

  • Barik Kumar & M. Supriya, 2014. "Evidence on Hedging Effectiveness in Indian Derivatives Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 21(2), pages 121-131, May.
    • Handle: RePEc:kap:apfinm:v:21:y:2014:i:2:p:121-131
    DOI: 10.1007/s10690-014-9179-6
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    References listed on IDEAS

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    Cited by:

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    2. B. Prasanna Kumar, 2017. "Derived signals for S & P CNX nifty index futures," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-22, December.

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    More about this item

    Keywords

    Hedging effectiveness; Constant correlation generalized auto-regressive conditional heteroscedasticity (1; 1)hedging method; Bank futures; CNX nifty; G10; G12; G21;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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