In this study we investigate the hedging effectiveness on the Nikkei 225 index within Osaka and Singapore Nikkei 225 Futures. The results show that the bivariate GARCH-CI model generates better hedging performances than the other models do, no matter what futures we use. Under these four models (bivariate GARCH-CI, ECM, VAR, and Kalman filter), a longer holding period generates a better hedging effectiveness. Moreover, the Osaka Nikkei 225 Futures provide better hedging performance than Singapore Nikkei 225 Futures do. We therefore conclude that investors employing Osaka Nikkei 225 Futures with a longer holding period to hedge spot risks can achieve the best hedging performance under the bivariate GARCH-CI model. These results are very helpful to investors who invest in Japan’s stock markets.
Journal of Statistics & Management Systems 8(3), pp.477-491