Estimation and Effectiveness of Optimal Hedge Ratios of Cryptocurrencies Based on Static and Dynamic Methodologies

IF 3 Q2 BUSINESS

Vision-The Journal of Business Perspective Pub Date : 2022-12-21 DOI:10.1177/09722629221135878

Vandana Dangi

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引用次数: 1

Abstract

The emergence of cryptocurrencies futures market is an innovative platform for prudent investors to hedge risk contained in their portfolio. However, the dicey environment of cryptocurrencies and mandatory requirement of Ind AS 39 has aroused the need for estimating hedging effectiveness of their futures market. This treatise is an attempt to investigate the hedging effectiveness of Bitcoin, Ethereum, XRP and Bitcoin Cash covering the period from June 2018 to May 2022. The interconnectedness of their spot and futures markets is initially studied using Johansen cointegration test, dynamic conditional correlation model, vector error correction model and block exogeneity Wald test. Their empirical results indicate interconnectedness in these markets having significant long-term relationship; persistent volatility correlations; significant unidirectional long-term causality from futures to spot; and bidirectional short-term causality in all cryptocurrencies. So, investors can hedge their risk by engaging position in cryptocurrencies’ futures. The OLS, VECM, GARCH and TARCH methodologies are applied to estimate static optimal hedge ratios and their estimates indicate that all cryptocurrencies have negative and significant ratios except XRP. The symmetric as well as asymmetric diagonal VECH and diagonal BEKK methodologies are applied to estimate dynamic-hedge ratios and their estimates depict negative mean dynamic-hedge ratios of all cryptocurrencies except XRP. These estimations imply that investors having long position in spot contracts of Bitcoin, Ethereum and Bitcoin Cash should hedge by taking short position in their futures contracts, respectively. However, XRP investors should hedge by taking long position in XRP future contracts. The empirical results clearly indicate the outperformance of static hedge strategies over dynamic hedge strategies as variance reduction framework of Ederington favours static OLS hedge strategy and the risk–return framework of Howard and D’Antonio favours static VECM hedge strategy for all cryptocurrencies. So, the long-run considerations have played a more crucial role as compared to short-run information. These findings may guide investors having different objective functions in understanding the effectiveness of different hedge strategies and their usage for achieving their objective functions. Policymakers, treasurers and auditors may also be benefitted from the insights provided in the present treatise on different estimation methodologies for hedging effectiveness.

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基于静态和动态方法的加密货币最优套期保值比率估计及其有效性

加密货币期货市场的出现为谨慎的投资者对冲其投资组合中的风险提供了一个创新平台。然而，加密货币的风险环境和Ind AS 39的强制性要求引起了对其期货市场对冲有效性估计的需要。本文试图调查比特币、以太坊、瑞波币和比特币现金在2018年6月至2022年5月期间的对冲有效性。本文采用Johansen协整检验、动态条件相关模型、矢量误差修正模型和块外生性Wald检验对两国现货和期货市场的互联性进行了初步研究。实证结果表明，这些市场的相互关联性具有显著的长期关系;持续波动相关性;从期货到现货的单向长期因果关系显著;以及所有加密货币的双向短期因果关系。因此，投资者可以通过参与加密货币期货来对冲风险。应用OLS、VECM、GARCH和TARCH方法估计静态最优对冲比率，其估计表明，除XRP外，所有加密货币都具有负且显著的比率。对称和不对称对角线VECH和对角线BEKK方法被应用于估计动态对冲比率，它们的估计描述了除XRP外所有加密货币的负平均动态对冲比率。这些估计意味着，持有比特币、以太坊和比特币现金现货合约多头头寸的投资者应该分别通过持有期货合约空头头寸进行对冲。然而，瑞波币投资者应该通过在瑞波币未来合约中持有多头头寸来对冲风险。实证结果清楚地表明，静态对冲策略优于动态对冲策略，因为Ederington的方差减少框架倾向于静态OLS对冲策略，Howard和D 'Antonio的风险回报框架倾向于所有加密货币的静态VECM对冲策略。因此，与短期信息相比，长期考虑发挥了更重要的作用。这些发现可以指导具有不同目标函数的投资者理解不同对冲策略的有效性及其为实现其目标函数而使用的方法。政策制定者、财务主管和审计师也可能受益于本文提供的关于套期保值有效性的不同估计方法的见解。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Vision-The Journal of Business Perspective Multiple-

CiteScore

4.60

自引率

0.00%

发文量

121

期刊介绍： Vision-The Journal of Business Perspective is a quarterly peer-reviewed journal of the Management Development Institute, Gurgaon, India published by SAGE Publications. This journal contains papers in all functional areas of management, including economic and business environment. The journal is premised on creating influence on the academic as well as corporate thinkers. Vision-The Journal of Business Perspective is published in March, June, September and December every year. Its targeted readers are researchers, academics involved in research, and corporates with excellent professional backgrounds from India and other parts of the globe. Its contents have been often used as supportive course materials by the academics and corporate professionals. The journal has been providing opportunity for discussion and exchange of ideas across the widest spectrum of scholarly opinions to promote theoretical, empirical and comparative research on problems confronting the business world. Most of the contributors to this journal range from the outstanding and the well published to the upcoming young academics and corporate functionaries. The journal publishes theoretical as well as applied research works.