Cross Hedging of Stock Returns and Gold Coin Futures Contracts with Approach BEKK-GARCH and CCC-GARCH

Document Type : Original Article

Authors

1 PhD. Student in Financial Engineering, Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran.

2 Associate Professor, North Tehran Branch, Islamic Azad University, Tehran, Iran.

3 Assistant Prof. Dr. , Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran

4 Assistant Prof. Department of Economics, Tehran Central Branch, Islamic Azad University, Tehran-Iran.

10.30495/ijfma.2023.70774.1947

Abstract

This study has attempted to calculate the optimal hedge ratio for investment in the stock market by investing in the futures market, with CCC -GARCH and BEKK-GARCH approach. The purpose of this study is to cover the cross risk of stock returns and coin futures in Tehran Securities Exchange using daily data during 2013-2019. Therefore, the researcher has used the BEKK-GARCH model and the CCC GARCH model to determine the effectiveness of different GARCH models for cross-covering the risk of the stock market return using the coin futures contract. According to the estimation of symmetric GARCH models in the present research, it was found that there is a possibility of cross hedging the risk of the stock yield market, and symmetric GARCH models are effective for hedging the risk in the stock market using the coin futures contract. On the other hand, considering that the coefficient of determination in the VAR-BEKK model is larger than the coefficient of determination in the CCC-GARCH model, therefore the VAR-BEKK model is more efficient than the CCC-GARCH model. Also, based on the coefficients obtained in these two models, considering that in the second equation of the CCC-GARCH model and the non-significance of the coefficients of the stock market return in the previous period and the two previous periods and its lack of effect on the return of the coin futures contract, it can be concluded that the model VAR-BEKK is more efficient than CCC-GARCH model.

Keywords

References

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