Analyze of the dynamics of optimal hedge ratio in the gold coin market: MS-DCC approach

In this paper, for the first time ,calculation of optimal hedge ratio for future gold coin contracts has been conflated a multivariate GARCH model (dynamic conditional correlation) with Markov Switching (MS).To this end, we use spot and futures daily prices over the 2017 March through 2018 March in Iran.The results of the Markov regime switching model indicate that the study period is identified under two regimes, which is a regime that reflects the low correlation regime of the futures market and other regime indicating a high correlation on the future market. Furthermore, the optimal hedge ratio of futures contracts are less than 1 and it means the cost of this strategy is less than simple hedge ratio. In general, it can be said that a higher risk prediction under the influence of bad news leads to a transition to a high correlation regime, with the relief of uncertainty, it will be shifted in other regime. In the Economic Analysis of Extreme points of the time series of optimal hedge ratios, results show that among the major fluctuations, the absolute minimum of them is related to 2017 August 25 because of factors such as the transfer of liquidity from the futures market to the stock market at the election in Iran and the 12th of March (the absolute maximum point) because of reasons like managing investors towards secure assets due to fractures in the markets affected by fear of Trump have had dramatic changes in the aforementioned ratio.