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Article
Publication date: 31 May 2003

Gyu Hyeon Mun and Jeong Hyo Hong

This paper studies the information spillover effects over price and volatility across countries by using open-to-close (daytime) returns and close-to-open (overnight) returns of…

13

Abstract

This paper studies the information spillover effects over price and volatility across countries by using open-to-close (daytime) returns and close-to-open (overnight) returns of NASDAQ 100 and KOSDAQ 50 index futures data from January 1, 2001 to December 31, 2001. Based on the time-varying AR(1)-GARCH (1,1)-M models, we document that statistically significant conditional mean and volatility spillover effects from the daytime returns of NASDAQ 100 index futures to both overnight returns and daytime returns of KOSDAQ 50 index futures were observed. We also find that there were information spillover effects from overnight returns of NASDAQ 100 index futures to daytime returns of KOSDAQ 50 index futures returns because investors in Korean stock markets can get information on U.S. stock market movement on real time basis due to the ECN transaction with its trading hour overlapped. Finally, we find that the daytime returns of KOSDAQ 50 index futures significantly influence the overnight and daytime returns of the NASDAQ 100 index futures.

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Journal of Derivatives and Quantitative Studies, vol. 11 no. 1
Type: Research Article
ISSN: 2713-6647

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Available. Open Access. Open Access
Article
Publication date: 30 November 2003

Gyu Hyeon Mun and Jeong Hyo Hong

This paper studies hedging strategies that use the KOSDAQ50 index futures to hedge the price risk of the KOSDAQ50 index spot portfolio. This study uses the minimum variance hedge…

16

Abstract

This paper studies hedging strategies that use the KOSDAQ50 index futures to hedge the price risk of the KOSDAQ50 index spot portfolio. This study uses the minimum variance hedge model and bivariate ECT-GARCH (1,1) model as hedging models, and analyzes their hedging performances. The sample period covers from January 31, 2001 to December 31, 2002. The most important findings may be summarized as follows. First, both the risk-minimization and GARCH model exhibit hedge ratios that are substantially lower than one. Hedge ratios of the risk-minimization tend to be higher than those of GARCH model. Second, for the in-sample data, hedging effectiveness of GARCH model is higher than that of the risk-minimization, while for the out-of-sample data, hedging effectiveness of the risk-minimization with constant hedge ratios is not far behind the GARCH model in its hedging performance. Third, the hedging performance of KOSDAQ50 index futures is lower than that of KOSPI200 index futures, but higher than that of KTB futures. In conclusion, in the KOSDAQ50 index market, investors are encouraged to use the simple risk-minimization model to hedge the price risk of KOSDAQ50 spot portfolios.

Details

Journal of Derivatives and Quantitative Studies, vol. 11 no. 2
Type: Research Article
ISSN: 2713-6647

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