The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets
In this paper, we investigate both constant and time-varying hedge ratios in terms of the effectiveness of CSI300 index futures during the COVID-19 crisis. Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effect...
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| Veröffentlicht in: | Research in international business and finance 2022-01, Vol.59, p.101510-101510, Article 101510 |
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| creator | Corbet, Shaen Hou, Yang (Greg) Hu, Yang Oxley, Les |
| description | In this paper, we investigate both constant and time-varying hedge ratios in terms of the effectiveness of CSI300 index futures during the COVID-19 crisis. Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effectiveness using the naïve hedging strategy; however, increased effectiveness of OLS and EC hedge ratios are identified. Differential behaviour is identified when considering five newly introduced COVID-19 concept-based stock indices. Time-varying hedge ratios indicate the weakened effectiveness, ranging between 20% and 40% variance reduction. Evidence suggests that the capability of the CSI300 index futures to hedge against the risks of the COVID-19 is impaired, regardless of whether constant or time-varying hedge ratios are used. Such results provide important implications to both local and foreign investors in the Chinese stock market. |
| doi_str_mv | 10.1016/j.ribaf.2021.101510 |
| format | Article |
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Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effectiveness using the naïve hedging strategy; however, increased effectiveness of OLS and EC hedge ratios are identified. Differential behaviour is identified when considering five newly introduced COVID-19 concept-based stock indices. Time-varying hedge ratios indicate the weakened effectiveness, ranging between 20% and 40% variance reduction. Evidence suggests that the capability of the CSI300 index futures to hedge against the risks of the COVID-19 is impaired, regardless of whether constant or time-varying hedge ratios are used. 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Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effectiveness using the naïve hedging strategy; however, increased effectiveness of OLS and EC hedge ratios are identified. Differential behaviour is identified when considering five newly introduced COVID-19 concept-based stock indices. Time-varying hedge ratios indicate the weakened effectiveness, ranging between 20% and 40% variance reduction. Evidence suggests that the capability of the CSI300 index futures to hedge against the risks of the COVID-19 is impaired, regardless of whether constant or time-varying hedge ratios are used. Such results provide important implications to both local and foreign investors in the Chinese stock market.</description><subject>China</subject><subject>COVID-19</subject><subject>Diversification</subject><subject>Financial markets</subject><subject>Hedge ratios</subject><issn>0275-5319</issn><issn>1878-3384</issn><issn>1878-3384</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2022</creationdate><recordtype>article</recordtype><recordid>eNp9kUtv1DAUhS0EokPhFyChLNlk8CNO4gVIaMqjUqVuCltjO9czd8jYg51U6r_H6ZQKNqws3XvOuUf-CHnN6JpR1r7brxNa49eccrZMJKNPyIr1XV8L0TdPyYryTtZSMHVGXuS8p5QryvhzciYaKVTZrsiPmx1UGPw4Q3BQRV9NZbC5_n55UTNVHU0Y4ICuiuF-sYNhi2Fb-Tm4CWMwI053i2uzwwAZKo_BBIdmrA4m_YQpvyTPvBkzvHp4z8m3z59uNl_rq-svl5uPV7VrFJ9qUdo0ggtLBTccLEDLqOe2GTwH5zsrVSvBUd9xb5W0nAkmG8k6BYzR1opz8uGUe5ztAQYHYUpm1MeEpcidjgb1v5uAO72Nt7pvRNcqWgLePgSk-GuGPOkDZgfjaALEOWsuu6YTvWjbIhUnqUsx5wT-8QyjemGj9_qejV7Y6BOb4nrzd8NHzx8YRfD-JIDyT7cISWeHC5YBE7hJDxH_e-A37AOg2A</recordid><startdate>20220101</startdate><enddate>20220101</enddate><creator>Corbet, Shaen</creator><creator>Hou, Yang (Greg)</creator><creator>Hu, Yang</creator><creator>Oxley, Les</creator><general>Elsevier B.V</general><general>The Author(s). 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| language | eng |
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| source | Elsevier ScienceDirect Journals Complete |
| subjects | China COVID-19 Diversification Financial markets Hedge ratios |
| title | The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets |
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