Effectiveness of Futures Contracts as Hedging Instruments for Rubber Price Risk: Evidence from Thailand
Keywords:
Rubber price risk, TFEX, futures contract, SET50 Index futures, single stock futures, hedging, cross hedgeAbstract
This study investigates whether the Thailand Futures Exchange (TFEX) listed futures contracts can be effectively used to transfer rubber price risks. Using auction price data of natural rubber ribbed smoke sheet no. 3 (RSS3) and daily settlement prices of highly liquid TFEX-listed futures contracts from 2007 to 2019, the results from the two different methods used to estimate static and dynamic optimal hedge ratios are consistent. The most effective futures contract for hedging RSS3 price risk is the RSS3 futures contract, which can reduce RSS3 price volatility by approximately 4-6%. Single-stock futures are more effective than SET50 index futures as hedging instruments. Specifically, the single stock futures contract of a company with a rubber-related business, STA, is the most effective futures contract, reducing 1-2% of RSS3 price volatility
References
Akhtaruzzaman, M., Boubaker, S., & Sensoy, A. (2021). Financial contagion during COVID–19 crisis. Finance Research Letters, 38(January), 101604. https://doi.org/https://doi.org/10.1016/j.frl.2020.101604
Ali, S., Bouri, E., Czudaj, R. L., & Shahzad, S. J. H. (2020). Revisiting the valuable roles of commodities for international stock markets. Resources Policy, 66(June), 101603. https://doi.org/https://doi.org/10.1016/j.resourpol.2020.101603
Andersen, T. G., Davis, R. A., Kreiß, J.-P., & Mikosch, T. V. (2009). Handbook of Financial Time Series. Springer.
Belousova, J., & Dorfleitner, G. (2012). On the Diversification Benefits of Commodities from the perspective of Euro Investors. Journal of Banking & Finance, 36(9), 2455-2472. https://doi.org/https://doi.org/10.1016/j.jbankfin.2012.05.003
Bessler, W., & Wolff, D. (2015). Do Commodities Add Value in Multi-Asset Portfolios? An Out-of-Sample Analysis for Different Investment Strategies. Journal of Banking & Finance, 60, 1-20. https://doi.org/https://doi.org/10.1016/j.jbankfin.2015.06.021
Brooks, C. (2014). Introductory Econometrics for Finance (3 ed.). Cambridge University Press.
Butterworth, D., & Holmes, P. (2001). The Hedging Effectiveness of Stock Index Futures: Evidence for the FTSE-100 and FTSE-Mid250 Indexes Traded in the UK. Applied Financial Economics, 11(1), 57-68. https://doi.org/https://doi.org/10.1080/09603100150210264
Buyukkara, G., Kucukozmen, C. C., & Uysal, E. T. (2022). Optimal hedge ratios and hedging effectiveness: An analysis of the Turkish futures market. Borsa Istanbul Review, 22(1), 92-102. https://doi.org/https://doi.org/10.1016/j.bir.2021.02.002
Cecchetti, S. G., Cumby, R. E., & Figlewski, S. (1988). Estimation of the Optimal Futures Hedge. The Review of Economics and Statistics, 70(4), 623 -630.
Chen, S.-S., Lee, C.-f., & Shrestha, K. (2003). Futures hedge ratios: a review. The Quarterly Review of Economics and Finance, 43, 433-465.
Chotinuchittrakul, V., & Boonvorachote, T. (2013). Optimal Hedge Ratio Estimations and Hedging Effectiveness: A Case Study of Thailand’s Commodity Futures Exchange. Thai Journal of Operations Research, 1(1), 16 - 24.
Chunhachinda, P., de Boyrie, M. E., & Pavlova, I. (2019). Measuring the hedging effectiveness of commodities. Finance Research Letters, 30, 201 - 207. https://doi.org/https://doi.org/10.1016/j.frl.2018.09.012
Cuny, C. J. (1993). The Role of Liquidity in Futures Market Innovations. The Review of Financial Studies, 6(1), 57-78. https://www.jstor.org/stable/2961989
Eaker, M. R., & Grant, D. M. (1987). Cross-Hedging Foreign Currency Risk. Journal of International Money and Finance, 6(1), 85-105. https://doi.org/https://doi.org/10.1016/0261-5606(87)90015-5
Ederington, L. H. (1979). The Hedging Performance of the New Futures Markets. The Journal of Finance, 34(1), 157-170. https://doi.org/https://doi.org/10.1111/j.1540-6261.1979.tb02077.x
Engle, R. (2002). Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models. Journal of Business & Economic Statistics, 20(3), 339 - 350. https://doi.org/https://doi.org/10.1198/073500102288618487
Exchange, T. F. (2019). Historical Trading Statistics by Series Thailand Futures Exchange. https://www.tfex.co.th/tfex/historicalMarketReport.html
He, Q., Liu, J., & Yu, J. (2020). The impact of COVID-19 on stock markets. Economic and Political Studies, 8(3), 275 - 288.
Herbst, A. F., Kare, D. D., & Caples, S. C. (1989). Hedging Effectiveness and Minimum Risk Hedge Ratios in the Presence of Autocorrelation: Foreign Currency Futures. Journal of Futures Markets, 9(3), 185 - 197.
Herbst, A. F., Kare, D. D., & Marshall, J. F. (1993). A Time Varying Convergence Adjusted Hedge Ratio Model. Advance in Futures and Options Research, 6, 137 - 155.
Howard, C. T., & D'Antonio, L. J. (1984). A Risk-Return Measure of Hedging Effectiveness. The Journal of Financial and Quantitative Analysis, 19(1), 101-112.
Howard, C. T., & D'Antonio, L. J. (1987). A Risk-Return Measure of Hedging Effectiveness: A Reply. The Journal of Financial and Quantitative Analysis., 22(3), 377-381.
Hsin, C. W., Kuo, J., & Lee, C. F. (1994). A new measure to compare the hedging effectiveness of foreign currency futures versus options. The Journal of Futures Markets, 14(6), 685-707.
Hull, J. C. (2015). Options, Futures, and Other Derivatives (9 ed.). Pearson Education, Inc.
In, F., & Kim, S. (2006). The Hedge Ratio and the Empirical Relationship between the Stock and Futures Markets: A New Approach Using Wavelet Analysis. Journal of Business, 79(2), 799-820.
Jindal, N., & Gupta, R. K. (2022). The Impact of COVID-19 on Stock Market Returns & Volatility: A Study of Thailand and Indian Bourses. THAILAND AND THE WORLD ECONOMY, 40(2), 145–167.
https://doi.org/https://so05.tci-thaijo.org/index.php/TER/article/view/258999
Koulis, A., Kaimakamis, G., & Beneki, C. (2018). Hedging Effectiveness for International Index Futures Markets. Economics and Business, 32(1), 149-159.
Kroner, K. F., & Sultan, J. (1993). Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures. The Journal of Financial and Quantitative Analysis, 28(4), 535-551. https://doi.org/https://doi.org/10.2307/2331164
Lien, D., & Luo, X. (1994). Multiperiod Hedging in the Presence of Conditional Heteroskedasticity. The Journal of Futures Markets, 14(8), 927-955.
Mensi, W., Shafiullah, M., Vo, X. V., & Kang, S. H. (2021). Volatility spillovers between strategic commodity futures and stock markets and portfolio implications: Evidence from developed and emerging economies. Resources Policy, 71(June), 102002. https://doi.org/https://doi.org/10.1016/j.resourpol.2021.102002
Moschini, G. C., & Myers, R. J. (2002). Testing for Constant Hedge Ratios in Commodity Markets: a Multivariate GARCH Approach. Journal of Empirical Finance, 9(5), 589-603. https://doi.org/https://doi.org/10.1016/S0927-5398(02)00012-9
Myers, R. J., & Thompson, S. R. (1989). Generalized Optimal Hedge Ratio Estimation. American Journal of Agricaltural Economics, 71(4), 858 - 868.
Nguyen, D. K., Sensoy, A., Sousa, R. M., & Uddin, G. S. (2020). U.S. equity and commodity futures markets: Hedging or financialization? Energy Economics, 86(February), 104660. https://doi.org/https://doi.org/10.1016/j.eneco.2019.104660
Okorie, D. I., & Lin, B. (2021). Stock markets and the COVID-19 fractal contagion effects. Finance Research Letters, 38(January), 101640. https://doi.org/https://doi.org/10.1016/j.frl.2020.101640
Sanders, D. R., & Manfredo, M. R. (2004). Comparing Hedging Effectiveness: An Application of the Encompassing Principle. Journal of Agricultural and Resource Economics, 29(1), 31-44.
Satyanarayan, S., & Varangis, P. (1996). Diversification Benefits of Commodity Assets in Global Portfolios. The Journal of Investing, 5(1), 69-78. https://doi.org/https://doi.org/10.3905/joi.5.1.69
Stock, J. H., & Watson, M. W. (2020). Introduction to Econometrics (4 ed.). Pearson Education.
Tashjian, E. (1995). Optimal Futures Contract Design. The Quarterly Review of Economics and Finance, 35(2), 153 - 162.
Thailand, R. A. o. (2019). Central Market Daily Rubber Price Rubber Authority of Thailand, Ministry of Agriculture and Cooperatives. https://www.raot.co.th/rubber2012/menu5.php
Tiwari, A. K., Abakah, E. J. A., Karikari, N. K., & Gil-Alana, L. A. (2022). The outbreak of COVID-19 and stock market liquidity: Evidence from emerging and developed equity markets. The North American Journal of Economics and Finance, 62(November), 101735. https://doi.org/https://doi.org/10.1016/j.najef.2022.101735
Topcu, M., & Gulal, O. S. (2020). The impact of COVID-19 on emerging stock markets. Finance Research Letters, 36(October), 101691. https://doi.org/https://doi.org/10.1016/j.frl.2020.101691
Vo, D. H., Chi Minh Ho, & Dang, T. H.-N. (2022). Stock market volatility from the Covid-19 pandemic: New evidence from the Asia-Pacific region. Heliyon, 8(9), e10763.
https://doi.org/https://doi.org/10.1016/j.heliyon.2022.e10763
Yao, Z., & Wu, H. (2012). Financial Engineering Estimation of Minimum Risk Hedge Ratio. Systems Engineering Procedia, 3, 187 - 193.
Zaremba, A., Aharon, D. Y., Demir, E., Kizys, R., & Zawadka, D. (2021). COVID-19, government policy responses, and stock market liquidity around the world: A note. Research in International Business and Finance, 56(April), 101359. https://doi.org/https://doi.org/10.1016/j.ribaf.2020.101359
Zhao, L., Rasoulinezhad, E., Sarker, T., & Taghizadeh-Hesary, F. (2023). Effects of COVID-19 on Global Financial Markets: Evidence from Qualitative Research for Developed and Developing Economies. The European Journal of Development Research, 35(1), 148 - 166.
https://doi.org/https://link.springer.com/article/10.1057/s41287-021-00494-x
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Journal of Accountancy and Management
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
บทความที่ได้รับการตีพิมพ์เป็นลิขสิทธิ์ของวารสารการบัญชีและการจัดการ
ข้อความที่ปรากฏในบทความแต่ละเรื่องในวารสารวิชาการเล่มนี้เป็นความคิดเห็นส่วนตัวของผู้เขียนแต่ละท่านไม่เกี่ยวข้องกับมหาวิทยาลัยมหาสารคาม และคณาจารย์ท่านอื่นๆในมหาวิทยาลัยฯ แต่อย่างใด ความรับผิดชอบองค์ประกอบทั้งหมดของบทความแต่ละเรื่องเป็นของผู้เขียนแต่ละท่าน หากมีความผิดพลาดใดๆ ผู้เขียนแต่ละท่านจะรับผิดชอบบทความของตนเองแต่ผู้เดียว
