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Should Investor invest in both future and spot market? : An Analysis through Optimal Hedge Ratio

Author

Listed:
  • Jose, Babu

    (St. Thomas College)

  • Lazar, D.

    (Pondicherry University)

Abstract

This study is to estimate optimal hedge ratio with the variables from Indian futures and spot market and also nineteen individual stock prices. Diagonal VEC-GARCH model is used for the period from June 2000 to June 2011. The Empirical results confirm that there is effective risk sharing and hedging processes in Indian futures market. It is also found that Indian futures and spot markets have strong causal relationship; which allows the trader to make perfect arbitrage process and hedge their risks.

Suggested Citation

  • Jose, Babu & Lazar, D., 2012. "Should Investor invest in both future and spot market? : An Analysis through Optimal Hedge Ratio," Asian Business Review, Asian Business Consortium, vol. 1(1), pages 21-29.
    • Handle: RePEc:ris:asbure:0160
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    Cited by:

    1. Vishwas B. & N. Sivakumar, 2016. "Mutual Fund Portfolio Hedging Using Index Futures: An Empirical Analysis," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(3), pages 203-210, August.

    More about this item

    Keywords

    Hedge Ratio; Futures Market; Spot Market; Causal Relationship;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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