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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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Detalles Bibliográficos
Autores principales: Corbet, Shaen, Hou, Yang (Greg), Hu, Yang, Oxley, Les
Formato: Online Artículo Texto
Lenguaje:English
Publicado: The Author(s). Published by Elsevier B.V. 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8437690/
https://www.ncbi.nlm.nih.gov/pubmed/34539027
http://dx.doi.org/10.1016/j.ribaf.2021.101510
Descripción
Sumario: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.