Int. J. Financial Stud. 2018, 6(2), 44; https://doi.org/10.3390/ijfs6020044
Cross Hedging Stock Sector Risk with Index Futures by Considering the Global Equity Systematic Risk
Wen-Chung Hsu 1 and Hsiang-Tai Lee 2,*
1
Department of International Business Studies, National Chi Nan University, No.1, University Rd., Puli, Nantou 545, Taiwan
2
Department of Banking and Finance, National Chi Nan University, No.1, University Rd., Puli, Nantou 545, Taiwan
*
Author to whom correspondence should be addressed.
Received: 24 December 2017 / Revised: 28 March 2018 / Accepted: 10 April 2018 / Published: 18 April 2018
(This article belongs to the Special Issue Finance, Financial Risk Management and their Applications)
Abstract
This article investigates the effectiveness of TAIEX (Taiwan Stock Exchange) futures, Taiwan 50 futures, and nonfinance nonelectronics subindex (NFNE) futures for cross hedging the price risk of stock sector indices traded on the Taiwan stock exchange. A state-dependent volatility spillover GARCH hedging strategy is developed to capture the regime switching global equity volatility spillover effect. Empirical results show that the NFNE futures exhibit superior effectiveness as an instrument for hedging stock sector exposures compared with the TAIEX and Taiwan 50 futures. Simultaneous hedge using both NFNE and MSCI (Morgan Stanley Capital International) world index futures further improves the hedging effectiveness compared with the hedging strategy using only the NFNE futures. This shows the importance of hedging the global equity systematic risk of stock sectors by considering the comovement between domestic and global equity markets. View Full-TextKeywords:
Markov regime switching; multiple futures hedging; volatility spillover; multivariate GARCH; cross hedging
▼
Figures
Figure 1
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
Share & Cite This Article
MDPI and ACS Style
Hsu, W.-C.; Lee, H.-T. Cross Hedging Stock Sector Risk with Index Futures by Considering the Global Equity Systematic Risk. Int. J. Financial Stud. 2018, 6, 44.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.
Related Articles
Article Metrics
Comments
[Return to top]
Int. J. Financial Stud.
EISSN 2227-7072
Published by MDPI AG, Basel, Switzerland
RSS
E-Mail Table of Contents Alert