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Evaluating Hedging Performance in the Crude Palm Oil Futures
Market Using Multi Mean GARCH Model
Nur Farahanis Binti Abd Ghani
Supervisor: Dr. Che Mohd Imran Bin Che Taib
Bachelor of Science (Financial Mathematics)
School of Informatics and Applied Mathematics
The use of different mean specifications getting less attention even though it may give
non-trivial effects to the measurement of hedging performance results. This study aims
the evaluating of the hedging performance in the crude palm oil futures market based on
three different mean specifications, namely, simple intercept, Vector autoregressive
(VAR) and Vector Error Correction Model (VECM). GARCH model was employed to show
the evidence of hedging performance measurement in the crude palm oil by using the
risk minimization and investor’s utility function. Then, this study finds out that the VAR-
BEKK model gives the most variance reduction for both in-sample and out-sample
analysis. Meanwhile, Intercept-BEKK and VECM-BEKK models giving the highest value of
investor’s utility function. These evidences show that different mean specifications
producing different hedging performance.
857 | UMT UNDERGRADUATE RESEARCH DAY 2018