Evaluating the hedging effectiveness in crude palm oil futures market during financial crises
This study examines whether there is a significant change in hedging effectiveness on Crude Palm Oil (CPO) futures market from January 1986 to December 2013. Eight hedging models with different mean and variance-covariance specifications have been evaluated. As the volatility of spot and futures mar...
| المؤلفون الرئيسيون: | , |
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| التنسيق: | Conference or Workshop Item |
| اللغة: | English |
| منشور في: |
2014
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| الموضوعات: | |
| الوصول للمادة أونلاين: | http://eprints.um.edu.my/13028/1/Evaluating_the_Hedging_Effectiveness.pdf |
| _version_ | 1825720279261773824 |
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| author | Go, Y.H. Lau, W.Y. |
| author_facet | Go, Y.H. Lau, W.Y. |
| author_sort | Go, Y.H. |
| collection | UM |
| description | This study examines whether there is a significant change in hedging effectiveness on Crude Palm Oil (CPO) futures market from January 1986 to December 2013. Eight hedging models with different mean and variance-covariance specifications have been evaluated. As the volatility of spot and futures markets is not similar across time, both markets exhibit asymmetric information transmission. Our results of out-of-sample evaluation show, firstly, the time-varying hedge ratios with basis term produce better performance during both financial crises. Secondly, high dynamic hedge ratios during the Asian financial crisis contribute to the support for CCC-GARCH model. Thirdly, during global financial crisis, BEKK-GARCH model appears to provide more risk reduction as compared to others. From the perspective of economic modeling, incorporating the basis term in modeling the joint dynamics of spot and futures returns during the crises provide better results. This study recommends that CPO market participants to adjust their hedging strategies in response to different movement in market volatility. |
| first_indexed | 2024-03-06T05:32:42Z |
| format | Conference or Workshop Item |
| id | um.eprints-13028 |
| institution | Universiti Malaya |
| language | English |
| last_indexed | 2024-03-06T05:32:42Z |
| publishDate | 2014 |
| record_format | dspace |
| spelling | um.eprints-130282015-03-23T00:44:37Z http://eprints.um.edu.my/13028/ Evaluating the hedging effectiveness in crude palm oil futures market during financial crises Go, Y.H. Lau, W.Y. HG Finance This study examines whether there is a significant change in hedging effectiveness on Crude Palm Oil (CPO) futures market from January 1986 to December 2013. Eight hedging models with different mean and variance-covariance specifications have been evaluated. As the volatility of spot and futures markets is not similar across time, both markets exhibit asymmetric information transmission. Our results of out-of-sample evaluation show, firstly, the time-varying hedge ratios with basis term produce better performance during both financial crises. Secondly, high dynamic hedge ratios during the Asian financial crisis contribute to the support for CCC-GARCH model. Thirdly, during global financial crisis, BEKK-GARCH model appears to provide more risk reduction as compared to others. From the perspective of economic modeling, incorporating the basis term in modeling the joint dynamics of spot and futures returns during the crises provide better results. This study recommends that CPO market participants to adjust their hedging strategies in response to different movement in market volatility. 2014-09 Conference or Workshop Item PeerReviewed application/pdf en http://eprints.um.edu.my/13028/1/Evaluating_the_Hedging_Effectiveness.pdf Go, Y.H. and Lau, W.Y. (2014) Evaluating the hedging effectiveness in crude palm oil futures market during financial crises. In: Annual Conference on Pacific Basin Finance, Economic, Accounting and Management, 04-05 Sep 2014, Nagoya, Japan. (Submitted) |
| spellingShingle | HG Finance Go, Y.H. Lau, W.Y. Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title | Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title_full | Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title_fullStr | Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title_full_unstemmed | Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title_short | Evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| title_sort | evaluating the hedging effectiveness in crude palm oil futures market during financial crises |
| topic | HG Finance |
| url | http://eprints.um.edu.my/13028/1/Evaluating_the_Hedging_Effectiveness.pdf |
| work_keys_str_mv | AT goyh evaluatingthehedgingeffectivenessincrudepalmoilfuturesmarketduringfinancialcrises AT lauwy evaluatingthehedgingeffectivenessincrudepalmoilfuturesmarketduringfinancialcrises |