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The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets

Corbet, Shaen orcid logoORCID: 0000-0001-7430-7417, Hou, Yang (Greg) orcid logoORCID: 0000-0003-0017-9912, Hu, Yang and Oxley, Les orcid logoORCID: 0000-0003-3621-2323 (2021) The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets. Research in International Business and Finance, 59 . ISSN 0275-5319

Abstract
In this paper, we investigate both constant and time-varying hedge ratios in terms of the effectiveness of CSI300 index futures during the COVID-19 crisis. Using naïve, OLS and EC/ROLS strategies to estimate constant hedge ratios, results indicate that the CSI300 spot index presents decreased effectiveness using the naïve hedging strategy; however, increased effectiveness of OLS and EC hedge ratios are identified. Differential behaviour is identified when considering five newly introduced COVID-19 concept-based stock indices. Time-varying hedge ratios indicate the weakened effectiveness, ranging between 20% and 40% variance reduction. Evidence suggests that the capability of the CSI300 index futures to hedge against the risks of the COVID-19 is impaired, regardless of whether constant or time-varying hedge ratios are used. Such results provide important implications to both local and foreign investors in the Chinese stock market.
Metadata
Item Type:Article (Published)
Refereed:Yes
Additional Information:article number: 101510
Uncontrolled Keywords:COVID-19; Hedge ratios; China; Financial markets; Diversification
Subjects:Business > Finance
DCU Faculties and Centres:DCU Faculties and Schools > DCU Business School
Publisher:Elsevier
Official URL:https://dx.doi.org/10.1016/j.ribaf.2021.101510
Copyright Information:© 2021 The Authors. Open Access (CC-BY 4.0)
ID Code:27567
Deposited On:16 Aug 2022 11:19 by Thomas Murtagh . Last Modified 16 Aug 2022 11:19
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