Dissertation for Master's Degree
Financial Orientation Business Management
Year: February 2011
Abstract:
The purpose of this research was to investigate the impact of contracts on investment risk in Tehran Stock Exchange.
One of the characteristics of the stock market is high price fluctuations, which causes price risk. Since in Iran's economy, the stock market and stock market activities are not known as an efficient tool in Iran, and price fluctuations are high due to economic conditions, and price risk has negative effects on the country's economy, so it seems necessary to manage and cover this risk through appropriate solutions. One of the ways to deal with the risk is to use financial derivatives and enter into paper transactions, which is discussed in this research.
In this study, short-term, medium-term and long-term futures contracts of Tehran Stock Exchange related to the years 2010-2013 have been used in order to check the hedging rates and choose the best ones, and the data is daily. Hedging rates were calculated by estimating ordinary least squares (OLS), value at risk (VAR) and vector error correction models (VECM).
Key words: futures contracts, investment risk, risk management, derivative instruments, cash price, risk hedging efficiency
Introduction
One of the basic goals of countries is to achieve sustainable economic growth and development. In the economy, capital is one of the pillars of the economic system and infrastructure and is the determining factor of economic growth and development. In addition to production factors such as human power, natural resources, technology and management, providing financial capital is one of the important factors of growth, survival and sustainability of production factors (industry, commerce and production sectors) without this important allocation of resources cannot be done easily.
Lack of financial resources to meet capital needs is one of the basic challenges of production units. (infrastructure) for business, which is important with the intervention of government agencies such as the stock exchange organization and attracting small capitals and obtaining huge funds and financial resources needed to start businesses as a serious issue, especially in developing countries, and is possible in this way.
If the process of obtaining the required funds is difficult and time-consuming, production units will give up on economic activity. Also, without sufficient financing, economic activities and businesses will never succeed.
Investigating and dealing with new financial methods using derivative instruments such as sukuk murabaha, sukuk mudarabah, sukuk jaala, sukuk mazareh, sukuk masakat and future contract are ways to obtain the funds needed by production companies.
The present study investigates the effects of new financial instruments (futures contracts) in the stock exchange by applying regression statistical methods and using econometric models and OLS, VAR, ECM in three hedging modes, without hedging and simple risk hedging (the optimal risk hedging rate) of stock market price fluctuations. Most of these tools have redistributed the market risk and made the market more cohesive by leaving aside the differences between banking activities and the stock market and making it possible for the borrowers to access the market It is an integral part of human life and every decision or action has some kind of risk, economic activities are not exempt from this and are accompanied by a degree of risk.
The existence of various financial instruments in the securities market brings more people's motivation and participation in providing financial resources for long-term activities.The diversity of financial instruments in terms of the combination of risk and return, the nature of profit and the method of participation in risk attracts different groups to the securities market. Three distinct roles can be considered for financial instruments: 1- First, financial instruments are means for transferring funds from shareholders who have excess capital and are willing to invest, to those who need these funds to invest in real assets. 2- Second, financial instruments perform the transfer of funds in such a way that the systematic risk related to cash flow resulting from investing in real assets is redistributed between applicants and suppliers of funds. (Gharmani, Zahra 2015)
3- Third, financial instruments are considered a means of consolidation. Adding and accumulating household savings to finance large investment projects is not possible without consolidation, which is an inseparable part of the financial system. If it was not possible to consolidate through the issuance of financial assets, it would not be possible for households to equip their capital and invest in a diverse portfolio of real assets. (Gharmani, Zahra 1385)
Derivative instruments are considered a type of risk management in financial markets. These tools have grown in proportion to the growth and development of investment both in real markets and in financial markets to cover investment risk. (Gharmani, Zahra 1385)
It will be possible to develop financial tools in the expansion of the market according to investment and division of securities. 1-3- Importance and necessity of research. Considering that in any investment activity, the presence of risk is unavoidable, therefore having tools to control its management will be of significant importance.
Today, we are witnessing the increasing expansion of financial tools in the direction of risk control and management.
In today's business conditions, the markets are very volatile and these fluctuations are the source of many types of risks. Inventing different financial instruments to cover these risks is the result of feeling the need to have special instruments for a specific purpose.
In the country of Iran, the fluctuating conditions in various business markets are well evident, and for this reason, inventing and benefiting from various risk hedging tools is very important.
Risk management requires new financial tools or its development in order to effectively control risk and minimize it, so that it is possible to provide innovative solutions for financial issues and problems. (Yar Ahmadi, Khorasani 1387)
The performance of the Tehran Stock Exchange shows that the capital market has not achieved its real and worthy position in the national economy. in such a way that the average share of the resources provided by this institution compared to the formation of gross domestic capital has not exceeded 1.6 percent.
If we want the capital market to make significant progress and continue its economic activity in the long term, it should be able to be used as an effective and efficient tool for mobilizing resources and savings by the government and the private sector.
1-4-Research Objectives
The main purpose of the research:
This research deals with the identification of new financial instruments and the use of derivative instruments and their application in the stock market and by using the value at risk to reduce the risk in the Tehran Stock Exchange.
Application goals:
Financial derivatives transactions are carried out with different goals and purposes, and each trader enters this market with a specific motivation. Hedging the risk of stock price fluctuations in the stock market is one of the goals that most stock sellers use to reduce and cover the risk of adverse price fluctuations.
1-5-question/research hypothesis
Main question: By using stock futures, the risk of investing in stocks is reduced.
First sub-question: The risk of investing in stocks is reduced by extending the maturity of the futures contract.
The second sub-question: As the maturity of the futures contract becomes longer, the effectiveness of risk hedging models increases.