Evaluation of Hedging Effectiveness for CNX Bank and Nifty Index Futures

The hedging effectiveness for bank futures and CNX nifty are evaluated in this study. The study is based on 9569 observations of the daily data for these index futures. For evaluation OLS, co-integrated OLS, GARCH (1, 1) and constant correlation GARCH (1, 1) hedging methods are estimated and compared. Result shows that constant correlation GARCH (1, 1) is an efficient hedging method that maximizes investors' utility function considering transaction costs. Therefore, investors can rely on this constant correlation GARCH (1, 1) hedging method