Abstract
In recent years, BRICS have become vital sources of growth in the global economy by the advantage of the natural resources and labor force. Derivatives products of BRICS market are favored by investors, including stock index futures are listed on the BRICS Exchanges, provide a good hedging tool for stock holders. The focus of this paper is how to conduct an effective hedging. The main data for empirical study consists of the IBOVESPA index, the RTS index, the S & P CNX NIFTY index, China Securities Index 300 (CSI 300) index and FTSE/JSE Shareholder Weighted Top40 index spots and futures. This paper uses copula-based GJR-GARCH models for the estimation of the optimal hedge ratio and compares their effectiveness with that of other hedging models, including the conventional static, the constant conditional correlation (CCC) GJR-GARCH, and the dynamic conditional correlation (DCC) GJR-GARCH models. The empirical results show that in both the in-sample and out-of-sample tests, the copula-based GJR-GARCH models perform more effectively than OLS model, except for CSI 300 index.
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