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A Comparison of Hedge Effectiveness and Price Discovery between TAIFEX TAIEX Index Futures and SGX MSCI Taiwan Index Futures

Author

Listed:
  • Shen-Yuan Chen

    (Department of Finance, Ming Chuan University, Taiwan, R.O.C.)

  • Ching-Chung Lin

    (Department of Business Administration, National Cheng-Kung University and Kao-Yuan Institute of Technology, Taiwan, R.O.C.)

  • Pin-Huang Chou

    (Department of Finance, National Central University, Taiwan, R.O.C.)

  • Dar-Yeh Hwang

    (Department of Finance, National Taiwan University, Taiwan, R.O.C.)

Abstract

This article uses daily data from July 21, 1998 to July 31, 2000 to examine the hedging effectiveness, price behavior, and lead-lag relationship of SGX MSCI Taiwan index futures and TAIFEX TAIEX futures. By applying the Bayesian approach using Gibbs sampler, we find that TAIFEX index futures has a better hedging performance. A variance ratio test reveals that mean reversion and negative correlation of returns exist in SGX index futures. Only TAIFEX TAIEX futures is cointegrated with TAIEX spot. The uni-directional Granger causality between the two futures markets and spot market are from SGX to TAIEX and from TAIEX to TAIFEX. In terms of price discovery, SGX MSCI Taiwan index futures play a more important role than TAIFEX TAIEX futures.

Suggested Citation

  • Shen-Yuan Chen & Ching-Chung Lin & Pin-Huang Chou & Dar-Yeh Hwang, 2002. "A Comparison of Hedge Effectiveness and Price Discovery between TAIFEX TAIEX Index Futures and SGX MSCI Taiwan Index Futures," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 277-300.
    • Handle: RePEc:wsi:rpbfmp:v:05:y:2002:i:02:n:s0219091502000791
    DOI: 10.1142/S0219091502000791
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    Citations

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    Cited by:

    1. Chung, Huimin & Hseu, Mei-Maun, 2008. "Expiration day effects of Taiwan index futures: The case of the Singapore and Taiwan Futures Exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 107-120, April.
    2. Tswei, Keshin & Lai, Jing-yi, 2009. "Information contents misjudged: Digressive convergence to equilibrium in cointegrated prices," Review of Financial Economics, Elsevier, vol. 18(4), pages 183-189, October.
    3. Keshin Tswei & Jing‐yi Lai, 2009. "Information contents misjudged: Digressive convergence to equilibrium in cointegrated prices," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 183-189, October.
    4. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.

    More about this item

    Keywords

    Gibbs sampler; Hedge; Index Futures; Price Discovery; Taiwan;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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