Title of article :
Multi mean garch approach to evaluating hedging performance in the crude palm oil futures market
Author/Authors :
Zainudin، Rozaimah نويسنده Faculty of Business and Accountancy , , Shaharudin، Roselee Shah نويسنده Head of Research Department ,
Issue Information :
دوفصلنامه با شماره پیاپی سال 2011
Abstract :
This paper provides evidence of hedging performance in the crude palm oil market using
risk minimisation and the investorʹs utility function measurement. We use the spot and
futures crude palm oil daily prices from the period of January 1996 to August 2008.
Using a dynamic model, we estimate three different mean specifications that involve the
intercept, Vector Autoregressive (VAR) and Vector Error Correction Model (VECM)
within the Baba, Engle, Kraft and Kroner (BEKK) model. The risk minimisation results
exhibit that the Intercept-BEKK and VAR-BEKK models tend to give the most variance
reduction within the in-sample and out-sample analysis, respectively. However, Intercept-
BEKK remains to outcast the other models in giving the most utility function. The
empirical evidence shows that different mean specifications will generate varying
hedging performance results, especially in relation to the risk minimisation result.
However, the difference in the performance among the tested models is small, especially
within the investorʹs utility function measurement. Since a more sophisticated model does
not warrant better hedging performance results, we suggest that a parsimony model may
be appropriate when improvising the hedging performance.
Journal title :
Asian Academy of Management Journal of Accounting and Finance (AAMJAF)
Journal title :
Asian Academy of Management Journal of Accounting and Finance (AAMJAF)