Hedging Effectiveness with CNX Bank Nifty and Nifty Futures : VECH (Ht) Approach

CNX bank nifty trading performance represents the state of Indian banking sector and thereby evaluates the socio-economic objectives. Using bivariate GARCH (1,1) model for both CNX bank nifty and nifty futures this study found that there persist long-run relationship between the spot and futures prices and thus returns. Here, this study calculated the futures prices with the usual cost of carry model considering the call rate as the proxy for the financing rate. This study also found that the hedge ratios for both the index futures are negative and caused the market as imperfect one. In this situation, investment decision requires the optimal investment preferences and choices with resource generations and diversifications. The study confirms that there is a long run relationship between the spot and futures prices and hence returns exist for both the index futures