Forecasting the Daily Dynamic Hedge Ratios in Emerging Stock Futures Markets: Evidence from the GARCH models By

This paper investigates the forecasting ability of five different versions of GARCH models. The five GARCH models applied are bivariate GARCH, GARCH-ECM, BEKK GARCH, GARCH-X and GARCH-GJR. Forecast errors based on four emerging stock futures portfolio return (based on forecasted hedge ratio) forecasts are employed to evaluate out-ofsample forecasting ability of the five GARCH models. Daily data from December 1999 to December 2009 from Brazil, Hungary, South Africa and South Korea are applied. Forecasts are conducted over two out-of-sample periods, one 2-year period 2008-2009 and one 1-year period 2007. Results show that BEKK model outperforms the other models during the 2-year forecast horizon and the GARCH-X is the best model during the 1-year forecast horizon. The GARCH model performs the worst during both forecast horizons. JEL Classification: G1, G15