Examining the Hedging Effectiveness of Futures Contracts over Pre and Post Financial Crisis Period:Evidence from National Stock Exchange of India

Present study examines the efficiency of futures contracts in hedging unwanted price risk over highly volatile period i.e. June 2000-December 2007 and January 2008-June 2014, pre and post-financial crisis period, by using S&PCNXNIFTY, CNXIT and BANKNIFTY for near month futures contracts. The hedge ratios have been estimated by using five methods namely Ederington's Model, ARMA-OLS, GARCH (p,q), EGARCH (p,q) and TGARCH (p,q). The study finds that hedging effectiveness increased during post crisis period for S&PCNXNIFTY and BANKNIFTY. However, for CNXIT hedging effectiveness was better during pre crisis period than post crisis. The study also finds that time-invariant hedge ratio is more efficient than time-variant hedge ratio.