African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4142

Full Length Research Paper

Asymmetric dynamic hedging effectiveness: Evidence from Taiwan Stock Index Futures

Chung-Chu Chuang1*, Yi-Hsien Wang2, Tsai-Jung Yeh1 and Shuo-Li Chuang3
1Graduate Institute of Management Sciences, Tamkang University, 151 Ying-Chuan Road, Tamsui, Taipei County 25137, Taiwan. 2Department of Banking and Finance, Chinese Culture University, No. 55, Hwa - Kang Road, Yang-Ming-Shan, Taipei County 11114, Taiwan. 3Department of Information, Risk and Operations Management, University of Texas at Austin, 1 University Station Austin, Texas 78712, U. S. A.
Email: [email protected]

  •  Accepted: 26 May 2011
  •  Published: 29 August 2012

Abstract

This study examines the asymmetric dynamic hedging effectiveness the Taiwan stock index futures by extending the concepts of naive hedging effectiveness and dynamic hedging effectiveness proposed by Choudhry (2003). Based on the minimum-variance hedging portfolio, static hedging models and dynamic hedging models are also compared in terms of hedging effectiveness, dynamic hedging effectiveness, hedging effectiveness of dynamic conditional correlation and asymmetric dynamic hedging effectiveness. Experimental results indicate that, there is an asymmetric dynamic hedging effectiveness in the Taiwan stock index futures asymmetric dynamic hedging. Additionally, hedging effectiveness of the dynamic conditional correlation hedging model is better than that of the conditional correlation hedging model. We thus recommend that investors consider the asymmetric dynamic hedging model when constructing the minimum-variance hedging portfolio.

 

Key words: Futures, hedging, hedging effectiveness, asymmetric dynamic hedging effectiveness.