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Optimal Hedge Ratio In Turkish Stock Index Futures Market: A Deco-Fiaparch Approach

Author

Listed:
  • ÇELÄ°K, Ä°smail

    (Department of Banking and Finance, Burdur Mehmet Akif Ersoy University, Burdur, Turkey. Author-Name: SAK, Ahmet Furkan
    Department of Business, Burdur Mehmet Akif Ersoy University, Burdur, Turkey)

Abstract
This paper adopts a new approach called DECO-FIAPARCH model for estimating the optimal hedge ratio (HR) in Turkish Stock Index Futures market in the presence of asymmetry and long memory. The study covers the period from May 3, 2005 until April 4, 2019, total of 3,508 daily observations. The DECO-FIAPARCH model shows that, on average, a $1 long position in the spot market can be hedged for $0.95316 with a short position in the futures market. Furthermore, optimal hedge ratio is time-varying and takes value between 0.52258 and 1.5263. This demonstrates that investors should revise their positions actively by considering the fluctuating cross correlations in spot and futures markets.

Suggested Citation

  • ÇELÄ°K, Ä°smail, 2021. "Optimal Hedge Ratio In Turkish Stock Index Futures Market: A Deco-Fiaparch Approach," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(4), pages 17-33, December.
    • Handle: RePEc:vls:finstu:v:25:y:2021:i:4:p:17-33
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Time-Varying Hedge Ratio; Asymmetry; Long Memory; Fractional APARCH Pages: 17-33;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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