International cross hedging effectiveness: empirical evidence on Egyptian Stock Exchange Index (EGX30) vis-à-vis global futures markets using standard deviation, Extended Mean Gini (EMG) and LnVGini.

Abdelwahab, Samar Abuwarda Maher (2020) International cross hedging effectiveness: empirical evidence on Egyptian Stock Exchange Index (EGX30) vis-à-vis global futures markets using standard deviation, Extended Mean Gini (EMG) and LnVGini. [Dissertation (University of Nottingham only)]

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Abstract

Despite derivative policies recommendation in 2008, till date Egypt lacks an effective local futures market. MSCI Egypt index and its associated futures launched in 2013 and terminated in 2016 could be considered the only solid attempt to an effective Egyptian stocks hedging. Such drawback beside the absence of short selling mechanism could present Egypt as a less attractive market for investors’ especially in light of the Egyptian government recent announcement to sell stakes of its State – Owned Enterprises (SOE) through Share Issue Privatization (SIP).

Hence, the main objective of this study is to examine the potential effects of international diversification synergies in the Egyptian stock market using cross hedging with global futures. Another motivation for this study is to examine the validity of LnVGini Coefficient (LnVG) as a rectifying application to EMG drawback by lacking proper measurement for risk seekers. Subsequently, this study examines whether the optimal variance hedging ratio (h) for risk seekers investors- derived from the LnVG model- will yield the same cross hedging effectiveness ratio as the risk averse. This study sample comprises of eleven international stock markets and ten global futures markets for the fifteen years period (2004-2018) namely located in US, UK, France, EU, Hong Kong, Singapore, Brazil, South Africa and Egypt.

This study findings depicts the superiority of MSCI-Singapore futures to cross hedge with EGX30. Furthermore, the empirical results proved the validity of our adjustment to the EMG model without violating the Gini coefficient boundaries. Subsequently, our results concluded that risk seekers investors could achieve a cross hedging effectiveness similar to the risk averse, yet with a lower volatility ratio if compared to the risk averse level. Hence, it is recommended to launch a local Egyptian future market. If not, an alternative strategy for marketing Egypt’s SIP to risk averse investors could be achieved through offering SOE shares with option of shortening MSCI- Singapore futures contracts in exchange for a higher share price. On the other hand, marketing SIP shares to risk seekers investors could be lucrative by shortening FTSE100, Dow30 and S&P500 futures.

Item Type: Dissertation (University of Nottingham only)
Depositing User: Abdelwahab, Samar
Date Deposited: 27 Feb 2020 06:01
Last Modified: 06 May 2020 10:31
URI: http://eprints.nottingham.ac.uk/id/eprint/57190

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