search query: @freeterm time varying minimum variance hedge ratio / total: 1
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Author: | Sultan, J. Hasan, M.S. |
Title: | The effectiveness of dynamic hedging: evidence from selected European stock index futures |
Journal: | European Journal of Finance
2008 : JUL-SEP, VOL. 14:5-6, p. 469-488 |
Index terms: | futures markets stock index options error correction models Europe optimal control theory models |
Freeterms: | bivariate GARCH-X time varying minimum variance hedge ratio out of sample hedge effectiveness |
Language: | eng |
Abstract: | This paper estimates time-varying optimal hedge ratios (OHRs) using a bivariate generalized autoregressive conditional heteroscedastic (GARCH) error correction model. Based on stock index and stock index futures from four European countries and compares the hedging effectiveness of the GARCH error correction model with alternative hedging models that hold the OHR constant.The following results: i.In three out of four cases, the GARCH error correction model is shown to offer superior risk reduction compared with the competing models. ii. The OHRs using the GARCH-X model, which allows the error correction term to be a determinant of the time-varying volatility. The results presented in this paper have important insights into the risk management of financial assets when returns distribution changes over time. |
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