Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets
The primary function of stock index futures is to allow investors to hedge their spot equity portfolios. And hedging effectiveness can be a criterion of success of index futures contract. This research attempts to evaluate the hedging performance of stock index futures in developed and emerging mark...
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| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
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2007
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| Online Access: | https://eprints.nottingham.ac.uk/20926/ |
| _version_ | 1848792153079152640 |
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| author | Zhang, Shu |
| author_facet | Zhang, Shu |
| author_sort | Zhang, Shu |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | The primary function of stock index futures is to allow investors to hedge their spot equity portfolios. And hedging effectiveness can be a criterion of success of index futures contract. This research attempts to evaluate the hedging performance of stock index futures in developed and emerging markets and find some further implications for developing stock index futures in emerging markets.
First, to measure the hedging performance, it is necessary to adopt an appropriate technique to estimate hedging ratios. Different methods in calculating optimal hedge ratios are described with a critical analysis of their advantages and drawbacks. Second, the hedging effectiveness is evaluated through the percentage of variance reduction and standard deviation changes between the hedged and the un-hedged portfolios. In the mature UK market, the hedging performance of FTSE100 index futures is outstanding with a 97% to 99% variability reduction in hedging its underlying stock index (FTSE100 basket) while in the less developed Korea market, the risk reduction level is from 90% to 98% with different hedging strategies and different hedge duration.
The further implication of the research is revealed relating to the current situation of some emerging markets. Considering the effectiveness of hedging function of the stock index futures in Korea market, the determinants of the success are considered. It is argued that a healthily development of futures market should rely on appropriate regulation system. However, the over restricted market will limit the hedging effectiveness due to the uncorrected basis. The structure of investors and contract size are also highly correlated with the success of the market, and to avoid price manipulation the underlying index should cover sufficient market capitals. |
| first_indexed | 2025-11-14T18:39:52Z |
| format | Dissertation (University of Nottingham only) |
| id | nottingham-20926 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T18:39:52Z |
| publishDate | 2007 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-209262018-03-06T12:36:16Z https://eprints.nottingham.ac.uk/20926/ Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets Zhang, Shu The primary function of stock index futures is to allow investors to hedge their spot equity portfolios. And hedging effectiveness can be a criterion of success of index futures contract. This research attempts to evaluate the hedging performance of stock index futures in developed and emerging markets and find some further implications for developing stock index futures in emerging markets. First, to measure the hedging performance, it is necessary to adopt an appropriate technique to estimate hedging ratios. Different methods in calculating optimal hedge ratios are described with a critical analysis of their advantages and drawbacks. Second, the hedging effectiveness is evaluated through the percentage of variance reduction and standard deviation changes between the hedged and the un-hedged portfolios. In the mature UK market, the hedging performance of FTSE100 index futures is outstanding with a 97% to 99% variability reduction in hedging its underlying stock index (FTSE100 basket) while in the less developed Korea market, the risk reduction level is from 90% to 98% with different hedging strategies and different hedge duration. The further implication of the research is revealed relating to the current situation of some emerging markets. Considering the effectiveness of hedging function of the stock index futures in Korea market, the determinants of the success are considered. It is argued that a healthily development of futures market should rely on appropriate regulation system. However, the over restricted market will limit the hedging effectiveness due to the uncorrected basis. The structure of investors and contract size are also highly correlated with the success of the market, and to avoid price manipulation the underlying index should cover sufficient market capitals. 2007 Dissertation (University of Nottingham only) NonPeerReviewed application/pdf en https://eprints.nottingham.ac.uk/20926/1/07MAlixsz10.pdf Zhang, Shu (2007) Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets. [Dissertation (University of Nottingham only)] (Unpublished) stock index futures hedge ratios hedging effectiveness |
| spellingShingle | stock index futures hedge ratios hedging effectiveness Zhang, Shu Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title | Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title_full | Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title_fullStr | Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title_full_unstemmed | Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title_short | Stock Index Futures and Hedging Performance: Evidence from Developed and Emerging Markets |
| title_sort | stock index futures and hedging performance: evidence from developed and emerging markets |
| topic | stock index futures hedge ratios hedging effectiveness |
| url | https://eprints.nottingham.ac.uk/20926/ |