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Hedging Effectiveness of Futures Contracts:A Study of Select Stocks in Indian Tourism and Hospitality Sector


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1 Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India
     

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This paper investigates the hedge effectiveness of futures contracts of tourism and hospitality sector in India using four sample stocks namely, ADANIPORTS, APOLLOHOSP, CONCOR and JETAIRWAYS, traded at NSE, for which data has been collected from January 1, 2016 to December 31, 2017 for near month futures contracts. The optimal hedge ratio is estimated using five specifications: naive, ordinary least square, autoregressive moving average ordinary least squares, vector autoregression and vector error correction. The study finds that one-to-one naive model provides superior hedging effectiveness over all the other models, implying equal investment in both spot and futures market to achieve highest effectiveness. Overall, the study finds that tourism and hospitality sector provides an effective platform for hedging with futures contracts.

Keywords

Tourism, Hospitality, Futures Contract, Hedging Effectiveness and Optimal Hedge Ratio.
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  • Hedging Effectiveness of Futures Contracts:A Study of Select Stocks in Indian Tourism and Hospitality Sector

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Authors

Mandeep Kaur
Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India
Kapil Gupta
Department of Management, I. K. Gujral Punjab Technical University, Kapurthala, Punjab, India

Abstract


This paper investigates the hedge effectiveness of futures contracts of tourism and hospitality sector in India using four sample stocks namely, ADANIPORTS, APOLLOHOSP, CONCOR and JETAIRWAYS, traded at NSE, for which data has been collected from January 1, 2016 to December 31, 2017 for near month futures contracts. The optimal hedge ratio is estimated using five specifications: naive, ordinary least square, autoregressive moving average ordinary least squares, vector autoregression and vector error correction. The study finds that one-to-one naive model provides superior hedging effectiveness over all the other models, implying equal investment in both spot and futures market to achieve highest effectiveness. Overall, the study finds that tourism and hospitality sector provides an effective platform for hedging with futures contracts.

Keywords


Tourism, Hospitality, Futures Contract, Hedging Effectiveness and Optimal Hedge Ratio.

References