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Hedging with Chinese Aluminum Futures: International Evidence with Return and Volatility Spillover Indices Under Structural Breaks

Lau, Chi Keung Marco and Bilgin, Mehmet Huseyin (2013) Hedging with Chinese Aluminum Futures: International Evidence with Return and Volatility Spillover Indices Under Structural Breaks. Emerging Markets Finance and Trade, 49 (Sup 1). pp. 37-48. ISSN 1540-496X

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Abstract

This paper examines the hedging performance of the Shanghai futures market, with the London futures market acting as the channel for volatility spillover. Taking into consideration structural change, basis effects, and return and volatility spillover effects, the authors find that the estimated hedging performance is not improved. Their findings suggest that the effectiveness of the hedging performance of aluminum futures contracts in China is not affected by the magnitude or direction of return and volatility spillovers. Therefore, even when the magnitude and direction of volatility spillover from other markets can be correctly predicted, the hedging performance of a futures contract cannot be significantly improved. This paper uses precise measures of return spillovers and volatility spillovers based directly on the framework of vector autoregressive variance decompositions. The study also includes an analysis of both crisis and noncrisis episodes, with modeling on bursts in spillovers.

Item Type: Article
Uncontrolled Keywords: Asymmetric basis effect; Dynamic hedging strategy; Futures market; Return and volatility spillover indices; Structural changes
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
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Depositing User: Chi Keung Lau
Date Deposited: 20 Nov 2017 09:23
Last Modified: 20 Nov 2017 09:23
URI: http://eprints.hud.ac.uk/id/eprint/33931

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