The Effects of Financial Crisis on Hedging Efficiency of Indian Rubber Future Markets

Saji Thazhungal Govindan Nair

doi:10.24294/fsj.v4i1.608

The Effects of Financial Crisis on Hedging Efficiency of Indian Rubber Future Markets

Saji Thazhungal Govindan Nair

Article ID: 608
Vol 4, Issue 1, 2021

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Abstract

This research, under Engle-Granger Co-integration framework, examines the hedging efficiency of Indian rubber future markets during the period 2004-2017. The essence of this study is to seek evidence for the effects of global financial crisis of 2008 on the efficiency of rubber futures in hedging price risks of spot rubber in India. The study proved the hedging efficiency of rubber futures during both pre and post recession periods. However, increased price volatility of Indian rubber after recession heightened risk exposure to market participants that eventually lead to unexpected changes in the hedging efficiency of rubber futures. The research concludes with a suggestion that writing of rubber futures in India allows traders to hedge risk exposures in spot market along with the potentials of arbitrage gains.

Keywords

Futures; Hedge Ratio; Co-integration

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DOI: https://doi.org/10.24294/fsj.v4i1.608