An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia

An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia

This paper evaluates the hedging effectiveness of the Malaysian crude palm oil futures market using daily settlement prices over the periods from January 4, 2010 to August 30, 2017. Hedge ratios and the hedging effectiveness are determined by employing four competing econometric models namely: the s...

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Main Author: Islam, Mohd Aminul
Format: Article
Language:English
Published: Academic Research Publishing Group 2017
Subjects:
HG Finance
HG4001 Financial management. Business finance. Corporation finance.
HG4501 Stocks, investment, speculation
Online Access:http://irep.iium.edu.my/60394/
http://irep.iium.edu.my/60394/
http://irep.iium.edu.my/60394/1/Published_IJEFR.pdf
id iium-60394
recordtype eprints
spelling iium-603942017-12-26T07:43:28Z http://irep.iium.edu.my/60394/ An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia Islam, Mohd Aminul HG Finance HG4001 Financial management. Business finance. Corporation finance. HG4501 Stocks, investment, speculation This paper evaluates the hedging effectiveness of the Malaysian crude palm oil futures market using daily settlement prices over the periods from January 4, 2010 to August 30, 2017. Hedge ratios and the hedging effectiveness are determined by employing four competing econometric models namely: the standard ordinary least square (OLS) regression model, vector error correction model (VECM) and two variations of the multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) models namely; diagonal-VECH and diagonal-BEKK GARCH models. The first two models estimate constant hedge ratios while the other two models estimate time varying hedge ratios. Hedging performance is evaluated and compared in terms of in-sample (Jan 2010 – Dec 2016) and out-of sample periods (Jan 2017 – Aug 2017) of the four hedge ratio models. The empirical results show that the MGARCH models particularly diagonal-BEKK GARCH model performs better than the other three models indicating that this model fits better in designing hedging strategy. The empirical finding suggests that the investors in crude palm oil markets in Malaysia can use CPO futures contract as an effective instrument to minimize the risk. Academic Research Publishing Group 2017 Article PeerReviewed application/pdf en http://irep.iium.edu.my/60394/1/Published_IJEFR.pdf Islam, Mohd Aminul (2017) An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia. International Journal of Economics and Financial Research, 3 (11). pp. 303-314. ISSN 2411-9407 E-ISSN 2413-8533 http://arpgweb.com/pdf-files/ijefr3(11)303-314.pdf
repository_type Digital Repository
institution_category Local University
institution International Islamic University Malaysia
building IIUM Repository
collection Online Access
language English
topic HG Finance
HG4001 Financial management. Business finance. Corporation finance.
HG4501 Stocks, investment, speculation
spellingShingle HG Finance
HG4001 Financial management. Business finance. Corporation finance.
HG4501 Stocks, investment, speculation
Islam, Mohd Aminul
An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
description This paper evaluates the hedging effectiveness of the Malaysian crude palm oil futures market using daily settlement prices over the periods from January 4, 2010 to August 30, 2017. Hedge ratios and the hedging effectiveness are determined by employing four competing econometric models namely: the standard ordinary least square (OLS) regression model, vector error correction model (VECM) and two variations of the multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) models namely; diagonal-VECH and diagonal-BEKK GARCH models. The first two models estimate constant hedge ratios while the other two models estimate time varying hedge ratios. Hedging performance is evaluated and compared in terms of in-sample (Jan 2010 – Dec 2016) and out-of sample periods (Jan 2017 – Aug 2017) of the four hedge ratio models. The empirical results show that the MGARCH models particularly diagonal-BEKK GARCH model performs better than the other three models indicating that this model fits better in designing hedging strategy. The empirical finding suggests that the investors in crude palm oil markets in Malaysia can use CPO futures contract as an effective instrument to minimize the risk.
format Article
author Islam, Mohd Aminul
author_facet Islam, Mohd Aminul
author_sort Islam, Mohd Aminul
title An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
title_short An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
title_full An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
title_fullStr An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
title_full_unstemmed An empirical evaluation of hedging effectiveness of crude palm oil futures market in Malaysia
title_sort empirical evaluation of hedging effectiveness of crude palm oil futures market in malaysia
publisher Academic Research Publishing Group
publishDate 2017
url http://irep.iium.edu.my/60394/
http://irep.iium.edu.my/60394/
http://irep.iium.edu.my/60394/1/Published_IJEFR.pdf
first_indexed 2023-09-18T21:25:37Z
last_indexed 2023-09-18T21:25:37Z
_version_ 1777412171318165504

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