Indian Journal of Finance

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A Comparative Study on Beta Hedging of High PE and Low PE Stocks Using Index Futures with Reference to NSE


Affiliations
1 Assistant Professor, School of Managementm, SRM University, Ramapuram Campus, Barathi Salai, Ramapuram, Chennai, 600 089, & Research Scholar, Manonmanium Sundaranar University Thirunelveli, Tamil Nadu, India
2 Assistant Professor, School of Management, SRM University, Ramapuram Campus, Barathi Salai, Ramapuram, Chennai, 600089,& Research Scholar, Manonmanium Sundaranar University, Thirunelveli, Tamil Nadu, India
3 Professor, Department of Management Studies, St. Peter's University, Avadi, Chennai, India

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This paper analyses the hedging effectiveness of both high and low PE stocks, which are the constituents in Nifty. This study explores the difference in hedging effectiveness between high PE and low PE stocks. A hedge is highly effective if the cash flow of the hedged item and the hedging derivative offset each other to a significant extent. The portfolio was analyzed by using fortnightly data. The beta values of the stocks were determined by using the preceding six-month data, and the hedge ratio was also determined. The performance of the portfolio - both hedged and unhedged - was studied for the period from September 2010 to March 2012. Statistical parametric tests conclude that high PE stocks hedging is highly effective, and in contrast, low PE stocks hedging is not effective.

Keywords

High PE, Low PE, Hedging Effectiveness, Hedging, Index Future, Nifty

G10, G11, G13

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  • A Comparative Study on Beta Hedging of High PE and Low PE Stocks Using Index Futures with Reference to NSE

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Authors

P. A. Mary Auxilia
Assistant Professor, School of Managementm, SRM University, Ramapuram Campus, Barathi Salai, Ramapuram, Chennai, 600 089, & Research Scholar, Manonmanium Sundaranar University Thirunelveli, Tamil Nadu, India
G. Y. Vishwanath
Assistant Professor, School of Management, SRM University, Ramapuram Campus, Barathi Salai, Ramapuram, Chennai, 600089,& Research Scholar, Manonmanium Sundaranar University, Thirunelveli, Tamil Nadu, India
S. Panneerselvam
Professor, Department of Management Studies, St. Peter's University, Avadi, Chennai, India

Abstract


This paper analyses the hedging effectiveness of both high and low PE stocks, which are the constituents in Nifty. This study explores the difference in hedging effectiveness between high PE and low PE stocks. A hedge is highly effective if the cash flow of the hedged item and the hedging derivative offset each other to a significant extent. The portfolio was analyzed by using fortnightly data. The beta values of the stocks were determined by using the preceding six-month data, and the hedge ratio was also determined. The performance of the portfolio - both hedged and unhedged - was studied for the period from September 2010 to March 2012. Statistical parametric tests conclude that high PE stocks hedging is highly effective, and in contrast, low PE stocks hedging is not effective.

Keywords


High PE, Low PE, Hedging Effectiveness, Hedging, Index Future, Nifty

G10, G11, G13