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On the Effectiveness of Dynamic Stock Index Portfolio Hedging: Evidence from Emerging Markets Futures

In: Advances in Financial Risk Management

Author

Listed:
  • Mohammad S. Hasan
  • Taufiq Choudhry

Abstract

Since the introduction of financial derivatives markets in developed countries during the 1970s and 1980s, and the later development in emerging markets during the 1990s, there has been much interest over the last three decades towards the modeling and forecasting of the optimal hedge ratios (OHR) and alternative hedging strategies applied to the commodity and financial futures.1 It is now well known that derivatives markets perform useful functions of price discovery, hedging, speculation and risk-sharing (see Working, 1953; Johnson, 1960; Silber, 1985 and Fortune, 1989). Hedgers use these markets as a means to avoid the market risk associated with adverse price change in the related cash markets. Speculators take positions in derivative instruments in the hope that subsequent price movements will generate profits. Overall, investors are given the choice of altering their asset portfolios between cash and derivatives markets.

Suggested Citation

  • Mohammad S. Hasan & Taufiq Choudhry, 2013. "On the Effectiveness of Dynamic Stock Index Portfolio Hedging: Evidence from Emerging Markets Futures," Palgrave Macmillan Books, in: Jonathan A. Batten & Peter MacKay & Niklas Wagner (ed.), Advances in Financial Risk Management, chapter 16, pages 364-390, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-02509-8_16
    DOI: 10.1057/9781137025098_16
    as

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