| Summary: | 碩士 === 淡江大學 === 財務金融學系碩士在職專班 === 94 === While the unsystematic risk of equity funds could be reduced through portfolio diversification, their systematic risk could only be hedged using derivatives like futures and options. Nonetheless, equity funds’ investors could still have considerable exposure to the systematic risk due to the current restrictions imposed on equity funds and the investment practice in Taiwan:
1. The futures position that an equity fund is permitted to hold can not exceed that of its stock holdings regardless of what the beta of its stock holdings is.
2. The equity funds are normally required to hold a minimum level of stock holdings at all time regardless of how bearish the market is.
3. A majority of equity funds do not hedge their stock holdings at all.
This research, assuming that the investors of the equity funds could personally hedge their investment in the funds with Taiwan Stock Index Futures, analyzes and compares the performance under the following hedging scenarios:
1. The funds are not hedged at all.
2. The funds are hedged at all time for the entire period.
3. The funds are hedged selectively with 4% filter.
4. The funds are hedged only prior to the extraordinary event of 319. In the analysis, the β used in the hedging ratio will be computed from Jensen Model and the hedging cost will include the brokerage commission, transaction tax, and trading loss of the hedging position.
Using the historical data of the 74 equity funds from January 2003 to December 2005 and applying the various hedging strategies described above, the following results are observed:
1.When the funds are hedged throughout the period, 12 out of 74 funds have lower risk and higher return than the TAIEX. Pair T test is performed resulting in a finding being statistically significant at 1% level. The degree of risk decrease is found to be in the range of 7.85% to 43.24%.
2.When the funds are hedged selectively with the use of filter, 60 out of 74 funds have lower risk and higher return than the TAIEX. Pair T test is also performed resulting in a finding being statistically significant at 1% level. The degree of risk decrease is found to be in the range of 12.75%~24.68%.
3.When the funds are hedged one week prior to the extraordinary event of 319, 25 of 74 funds have lower risk and higher return than the TAIEX. Pair T test is performed resulting in a finding being statistically significant at 5% level. The degree of risk decrease is found to be in the range of 33.41%~80.02%.
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