Abstract:
The study attempts is to provide an insight on volatility traverse and hedging effectiveness of four currency pairs traded at the Indian National Stock Exchange through an application of the asymmetric GARCHBEKK framework and constant/time-varying hedging models. The sample period from February 2010 to October 2019 has been used in the study. The results show significant bidirectional shock and volatility transmission among spot and futures currency market. The magnitude of hedging effectiveness from the dynamic time-varying model is significantly higher than the constant hedging models. Across four currency pairs, USD/INR highlighted higher performance in the reduction of variances against the un-hedged position.
