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

      Corbet, Shaen; Hou, Yang (Greg); Hu, Yang; Oxley, Les
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      The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets.pdf
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      DOI
       10.1016/j.ribaf.2021.101510
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      Permanent link to Research Commons version
      https://hdl.handle.net/10289/14630
      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.
      Date
      2022
      Type
      Journal Article
      Publisher
      Elsevier
      Rights
      © 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
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      • Management Papers [1098]
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