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Dynamic Hedging Effectiveness in South Korean Index Futures and the Impact of the Asian Financial Crisis

Dynamic Hedging Effectiveness in South Korean Index Futures and the Impact of the Asian Financial... This paper focuses on the impact of the 1997 Asian financial market crisis upon hedging effectiveness within the KOSPI 200 stock index and index futures markets. The paper utilizes the inter-temporal relationship between the two markets to examine the characteristics of several minimum variance hedge ratios. It also examines the performances of alternative hedging strategies for dynamic portfolio management in the presence of cointegrated time-varying risks. The results show a decline in the persistence of conditional volatility within market prices after the crisis. This decline leads to the relative performance of utilizing constant hedge ratios to increase, though not significantly so to guarantee a superior performance over more sophisticated time-varying hedge ratio strategies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Financial Markets Springer Journals

Dynamic Hedging Effectiveness in South Korean Index Futures and the Impact of the Asian Financial Crisis

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Finance, general; Macroeconomics/Monetary Economics//Financial Economics; International Economics; Econometrics; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
1387-2834
eISSN
1573-6946
DOI
10.1023/A:1016268419530
Publisher site
See Article on Publisher Site

Abstract

This paper focuses on the impact of the 1997 Asian financial market crisis upon hedging effectiveness within the KOSPI 200 stock index and index futures markets. The paper utilizes the inter-temporal relationship between the two markets to examine the characteristics of several minimum variance hedge ratios. It also examines the performances of alternative hedging strategies for dynamic portfolio management in the presence of cointegrated time-varying risks. The results show a decline in the persistence of conditional volatility within market prices after the crisis. This decline leads to the relative performance of utilizing constant hedge ratios to increase, though not significantly so to guarantee a superior performance over more sophisticated time-varying hedge ratio strategies.

Journal

Asia-Pacific Financial Markets – Springer Journals

Published: Oct 9, 2004

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