Can Crude Oil Futures be the Good Hedging Tool for Tyre Equities? Evidence from India

Authors

  • K. Abhaya Kumar Department of business administration, Mangalore institute of technology & engineering, Moodabidri, India
  • Prakash Pinto 2Department of business administration, St. Joseph engineering college, Vamanjoor, Mangalore, India
  • Iqbal Thonse Hawaldar Kingdom University http://orcid.org/0000-0001-7181-2493
  • K. G. Ramesh Department of business administration, Sahyadri college of engineering and management, Mangalore, India

Abstract

This article examines the cross-hedging performance of crude futures against the tyre equity futures to hedge the tyre equity stocks. Three multivariate conditional volatility models, namely constant conditional correlation (CCC), dynamic conditional correlation (DCC) and diagonal BEKK are applied. Using the conditional covariance and variance from the MGARCH estimates, the optimal hedge ratios (OHRs) are computed. The results of this study show that the volatility spillover exists between the returns of crude oil futures and tyre equity. However, for tyre equities, the best cross hedge is tyre equity futures rather than crude futures. All the MGARCH estimates show better hedging possibility with tyre equity futures, particularly MRF futures.

Keywords: CCC; Crude future; DCC; Diagonal BEKK; Tyre equity; Tyre equity futures

JEL Classifications: G21; G30

DOI: https://doi.org/10.32479/ijeep.11863

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Author Biography

Iqbal Thonse Hawaldar, Kingdom University

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Published

2021-11-03

How to Cite

Kumar, K. A., Pinto, P., Hawaldar, I. T., & Ramesh, K. G. (2021). Can Crude Oil Futures be the Good Hedging Tool for Tyre Equities? Evidence from India. International Journal of Energy Economics and Policy, 11(6), 523–537. Retrieved from http://econjournals.com/index.php/ijeep/article/view/11863

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