Hedging Effectiveness of Constant and Time-Varying Hedge Ratio in Indian Commodity Futures Markets: Evidence from the Multi-Commodity Exchange

-- P Srinivasan

The present study examines the performance of various hedge ratios estimated under different econometric models, viz., the conventional OLS model, the VECM, and the Multivariate-GARCH (M-GARCH) with error correction model, and compares them in terms of variance minimization criterion over the in-sample and out-of-sample periods for the selected commodity market indices of Multi-Commodity Exchange (MCX), viz., MCXCOMDEX, MCXAGRI, MCXENERGY, and MCXMETAL. The data span of the study is from June 8, 2005 to September 31, 2010. Out of the total observations of the respective commodity market indices, the last 60 observations were used to facilitate outof- sample hedge ratio performance comparison. By and large, the comparison of both in-sample and out-of-sample hedging performances in the present study indicates that the hedging strategy obtained from time-varying hedge ratio, which minimizes the conditional variance, performs better than the alternative models for all commodity market indices, except MCXAGRI. This implies that in selecting the most appropriate hedge ratio, the investor’s degree of risk aversion might play a relatively important role. This suggests that risk aversion being the major goal of an investor, the dynamic M-GARCH model hedging strategy performs best in reducing the conditional variance of the hedged portfolio.

© 2011 IUP. All Rights Reserved.

A Quest for Small-Firm Effect: Evidence from KLSE Second Board

-- Abdul Razak Bin Abdul Hadi, Jaafar Pyeman
and Wan Mansor Wan Mahmood

A myriad of empirical studies conducted in developed markets indicate the existence of small-firm effect. This study is undertaken to investigate the presence of firm effect in emerging markets such as Malaysia Bourse (formerly known as Kuala Lumpur Stock Exchange). Applying the method used by Jensen et al. (1998), the study reveals an opposite result compared to that of the studies on developed markets. There is no statistically significant size premium on the stocks listed in the Kuala Lumpur Second Board. During the study period from 1990 to 2003, the large-cap portfolios consistently outperformed the small-cap portfolios, irrespective of the weightage used to form the two portfolios.

© 2011 IUP. All Rights Reserved.

Effectiveness of Microfinance Under SGSY Scheme to Reduce Poverty and Vulnerability of Rural Households: A Natural Experiment

-- Amit Kundu

This paper shows that the Government of India supported microfinance program under Swarnajayanti Grameen Swarojgari Yojana (SGSY) scheme is partially effective in reducing poverty of the rural households. Here, a few expansions in the National Rural Employment Guarantee scheme play the supportive role. Taking the help of Natural Experiment, it is also proved that the microfinance program is also able to reduce the vulnerability of the rural participating households. This is done through constructing vulnerability index. The social factor, i.e., enhancement of empowerment of the participating Self-Help Group (SHG) members, all of whom are women, under SGSY scheme between the concerned time period and size of microcredit taken for income generating activities, plays a significant role in reducing the vulnerability of the participating households under this microfinance program.

© 2011 IUP. All Rights Reserved.