Constant & time-varying hedge ratio for FBMKLCI stock index futures
This paper examines hedging strategy in stock index futures for Kuala Lumpur Composite Index futures of Malaysia. We employed two different econometric methods such as-vector error correction model (VECM) and bivariate generalized autoregressive conditional heteroskedasticity (BGARCH) models to est...
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| Format: | Proceeding Paper |
| Language: | English English English |
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2016
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| Online Access: | http://irep.iium.edu.my/54322/ http://irep.iium.edu.my/54322/1/QP_37_2016.pdf http://irep.iium.edu.my/54322/2/QP37_2016_Certificate.pdf http://irep.iium.edu.my/54322/3/QP_37_Programme%20%26%20Abstract%20Book.pdf |
| _version_ | 1848784393333637120 |
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| author | Islam, Mohd Aminul |
| author_facet | Islam, Mohd Aminul |
| author_sort | Islam, Mohd Aminul |
| building | IIUM Repository |
| collection | Online Access |
| description | This paper examines hedging strategy in stock index futures for Kuala Lumpur Composite Index futures of Malaysia. We employed two different econometric
methods such as-vector error correction model (VECM) and bivariate generalized autoregressive conditional heteroskedasticity (BGARCH) models to estimate
optimal hedge ratio by using daily data of KLCI index and KLCI futures for the period from January 2012 to June 2016 amounting to a total of 1107 observations.
We found that VECM model provides better results with respect to estimating hedge ratio for spot month futures and one-month futures, while BGACH shows
better for distance futures. While VECM estimates time invariant hedge ratio, the BGARCH shows that hedge ratio changes over time. As such, hedger should
rebalance his/her position in futures contract time to time in order to reduce risk exposure. |
| first_indexed | 2025-11-14T16:36:32Z |
| format | Proceeding Paper |
| id | iium-54322 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English English English |
| last_indexed | 2025-11-14T16:36:32Z |
| publishDate | 2016 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-543222017-01-05T11:02:56Z http://irep.iium.edu.my/54322/ Constant & time-varying hedge ratio for FBMKLCI stock index futures Islam, Mohd Aminul HG Finance HG4501 Stocks, investment, speculation This paper examines hedging strategy in stock index futures for Kuala Lumpur Composite Index futures of Malaysia. We employed two different econometric methods such as-vector error correction model (VECM) and bivariate generalized autoregressive conditional heteroskedasticity (BGARCH) models to estimate optimal hedge ratio by using daily data of KLCI index and KLCI futures for the period from January 2012 to June 2016 amounting to a total of 1107 observations. We found that VECM model provides better results with respect to estimating hedge ratio for spot month futures and one-month futures, while BGACH shows better for distance futures. While VECM estimates time invariant hedge ratio, the BGARCH shows that hedge ratio changes over time. As such, hedger should rebalance his/her position in futures contract time to time in order to reduce risk exposure. 2016-08-22 Proceeding Paper NonPeerReviewed application/pdf en http://irep.iium.edu.my/54322/1/QP_37_2016.pdf application/pdf en http://irep.iium.edu.my/54322/2/QP37_2016_Certificate.pdf application/pdf en http://irep.iium.edu.my/54322/3/QP_37_Programme%20%26%20Abstract%20Book.pdf Islam, Mohd Aminul (2016) Constant & time-varying hedge ratio for FBMKLCI stock index futures. In: 37th International Conference on Quantum Probability and Related Topics (QP37) 2016, 22-26 August 2016, Kuantan, Pahang, Malaysia. (Unpublished) |
| spellingShingle | HG Finance HG4501 Stocks, investment, speculation Islam, Mohd Aminul Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title | Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title_full | Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title_fullStr | Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title_full_unstemmed | Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title_short | Constant & time-varying hedge ratio for FBMKLCI stock index futures |
| title_sort | constant & time-varying hedge ratio for fbmklci stock index futures |
| topic | HG Finance HG4501 Stocks, investment, speculation |
| url | http://irep.iium.edu.my/54322/ http://irep.iium.edu.my/54322/1/QP_37_2016.pdf http://irep.iium.edu.my/54322/2/QP37_2016_Certificate.pdf http://irep.iium.edu.my/54322/3/QP_37_Programme%20%26%20Abstract%20Book.pdf |