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Using Regression Techniques To Estimate Futures Hedge Ratios
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Book Synopsis Using Regression Techniques to Estimate Futures Hedge Ratios, Some Results from Alternative Approaches Applied to Australian 10 Year Treasury Bond Futures by : David E. Allen
Download or read book Using Regression Techniques to Estimate Futures Hedge Ratios, Some Results from Alternative Approaches Applied to Australian 10 Year Treasury Bond Futures written by David E. Allen and published by . This book was released on 2002 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper uses Australian bond futures data from the Sydney Futures Exchange to critically assess some of the potential problems involved in the use of cointegration techniques in the calculation of minimum variance hedge ratios. Following Ghosh (1993a,b) there have been a number of papers which have made use of these techniques. Ghosh (1993), and Lien (1996) suggest that if spot and futures prices are cointegrated then the non-inclusion of an error correction term in the VAR model used to estimate the hedge ratio will lead to mis-specification problems and the under-estimation of the true optimal hedge ratio. We examine the use of such regression techniques in the calculation of hedge ratios.In particular we consider the extent to which the stacking of the data into a time series, which effectively constrains the estimated hedge ratio to a single value over the span of the data, influences the results of such techniques. If the hedge ratio differs by contract, the movement from one contract to the next is likely to lead to instability in the estimated regression coefficients. Tests for parameter instability in the estimated regression suggest that this is indeed the case and our conclusion is that it is preferable to consider the estimation of the hedge ratio in a panel setting with each individual contract considered as an observational unit. One problem in the past with such a move has been the lack of tests for cointegration and unit roots in such a setting, fortunately these are now available and we take advantage of them in this paper. In such a panel setting we find that the result that the spot and futures prices are cointegrated still holds but that the estimated hedge ratios are not constant between contracts, throwing doubt on the applicability of regression methods which make such an assumption.
Book Synopsis Using Regression Techniques to Estimate Futures Hedge Ratios by :
Download or read book Using Regression Techniques to Estimate Futures Hedge Ratios written by and published by . This book was released on 1999 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Are Regression Approach Futures Hedge Ratios Stationary? by : Robert Ferguson
Download or read book Are Regression Approach Futures Hedge Ratios Stationary? written by Robert Ferguson and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In contrast to some recent research, this article finds that regression approach futures hedge ratios are stationary. It shows that a previous study's failure to reject the random walk null hypothesis was due to its small sample size and the overlapping hedge ratio calculation approach's bias toward accepting the random walk hypothesis. The impact of overlap on the Dickey-Fuller full model intercept and slope estimates is demonstrated analytically and numerically. Finally, the article shows that out-of-sample hedging performance is not significantly improved by updating the hedge ratios.
Book Synopsis Futures Hedge Profit Measurement Error-Correction Model Vs. Regression Approach Hedge Ratios, and Data Error Effects by : Robert Ferguson
Download or read book Futures Hedge Profit Measurement Error-Correction Model Vs. Regression Approach Hedge Ratios, and Data Error Effects written by Robert Ferguson and published by . This book was released on 2017 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes that, and explains why, hedge profits and regression approach hedge ratios should be calculated using cost-of-carry-adjusted price changes. This Modified Regression Method for determining hedge ratios is denoted MRM. The paper discusses the Error-Correction Model for hedge ratio determination as it has been applied (denoted ECM), discusses how it should be applied, and relates each to the MRM. Data errors can cause the MRM hedge ratios to be smaller and more variable than the ECM's (as observed empirically). On theoretical and practical grounds, the MRM is preferred to the ECM unless there are significant data errors.
Book Synopsis Hedging Instruments and Risk Management by : Patrick Cusatis
Download or read book Hedging Instruments and Risk Management written by Patrick Cusatis and published by McGraw Hill Professional. This book was released on 2005-02-22 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: Books on complex hedging instruments are often more confusing than the instruments themselves. Hedging Instruments & Risk Management brings clarity to the topic, giving money managers the straightforward knowledge they need to employ hedging tools and techniques in four key markets—equity, currency, fixed income, and mortgage. Using real-world data and examples, this high-level book shows practitioners how to develop a common set of mathematical and statistical tools for hedging in various markets and then outlines several hedging strategies with the historical performance of each.
Book Synopsis Regression-based Hedging with Short-term Interest Rate Futures by : Zazral Purewsuren
Download or read book Regression-based Hedging with Short-term Interest Rate Futures written by Zazral Purewsuren and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Cross and Delta-Hedges by : Piet Sercu
Download or read book Cross and Delta-Hedges written by Piet Sercu and published by . This book was released on 2002 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: In implementing a variance-minimizing cross or delta hedge, the regression coefficient is often estimated using data from the past, but one could also use estimators that are suggested by the random-walk or unbiased-expectations models and require just a single price. We compare the performances of various hedge ratios for three-month currency exposures, and find that the price-based hedge ratios generally perform better than the regression-based ones. Specifically, all our regressions do systematically worse in the case of a delta hedge, and seem to beat the price-based hedge ratios only in the case of cross- or cross-and-delta problems where the two currencies are so distantly related-like, e.g., the ITL/USD and the JPY/USD-that no risk manager would even consider them as hedges of each other. The results are robust to observation frequency in the regressions, sample period, percentage vs. dollar returns, and OLS versus IV. Nor can the poor performance of the regressions be attributed to errors-in-variables bias because we correct the futures prices for synchronization noise, bid-ask bounce, and changing time to maturity. One reason why price-based methods do better is that they provide immediate adjustment to breaks in the data (like EMS realignments, which get incorporated into rolling regression coefficients only very slowly, as time elapses) or other events that change the relationship between the regressor and regressand. For cross or cross-and-delta hedges between European currencies, regressions also have difficulties in capturing cross-correlations between exchange rates.
Book Synopsis Hedge Ratio Estimation and Hedging Effectiveness by : Dimitris Kenourgios
Download or read book Hedge Ratio Estimation and Hedging Effectiveness written by Dimitris Kenourgios and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the hedging effectiveness of the Standard amp; Poor's (Samp;P) 500 stock index futures contract using weekly settlement prices for the period July 3rd, 1992 to June 30th, 2002. Particularly, it focuses on three areas of interest: the determination of the appropriate model for estimating a hedge ratio that minimizes the variance of returns; the hedging effectiveness and the stability of optimal hedge ratios through time; an in-sample forecasting analysis in order to examine the hedging performance of different econometric methods. The hedging performance of this contract is examined considering alternative methods, both constant and time-varying, for computing more effective hedge ratios. The results suggest the optimal hedge ratio that incorporates nonstationarity, long run equilibrium relationship and short run dynamics is reliable and useful for hedgers. Comparisons of the hedging effectiveness and in-sample hedging performance of each model imply that the error correction model (ECM) is superior to the other models employed in terms of risk reduction. Finally, the results for testing the stability of the optimal hedge ratio obtained from the ECM suggest that it remains stable over time.
Book Synopsis Effectiveness of Time-Varying Hedge Ratio with Constant Conditional Correlation by : Sheraz Ahmed
Download or read book Effectiveness of Time-Varying Hedge Ratio with Constant Conditional Correlation written by Sheraz Ahmed and published by . This book was released on 2016 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study demonstrates how hedging methodologies can be evaluated in a modern risk management context and provides a hedging effectiveness of dynamic hedge ratios. The results provide an indication of the superior performance of the time varying hedge ratio as compared with traditional constant ratio. Time varying hedge ratio estimated by CCC-GARCH model shows a clear advantage over linear regression based constant hedge ratio in minimizing the variance (risk) of portfolio returns over the whole 10 years of analysis. The time-varying hedge ratio estimated in our study provides an efficient measure for bond investors to maximize the value of their investments by changing positions in both spot and future markets of U.S. Treasuries with the change in actual yields of cash market. The results are robust in the sense that constant conditional correlation model does take account of the conditional heteroskedasticity present in the data in case of spot market.
Book Synopsis The Hedging Effectiveness of Single Stock Futures by : Nathalie Senez
Download or read book The Hedging Effectiveness of Single Stock Futures written by Nathalie Senez and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the hedging effectiveness of Universal Stock Futures trading in London at protecting the underlying spot position from variations in portfolio returns using four different hedge ratios. The hedge ratios under analysis are: the naive 1:1 hedge ratio, the risk-minimizing hedge ratio, a modified version of the risk-minimizing hedge ratio and a time-varying hedge ratio under a GARCH (1,1) process which is allowed to change on a daily basis. The aim of the research is to examine which hedge ratio provides the best protection from market fluctuations when hedging a stock spot position with its futures contract. The findings suggest that the time-varying hedge ratio provides a better hedging strategy than the other techniques although some companies exhibited a smaller portfolio variance when protected with a constant hedge ratio.
Book Synopsis M-GARCH Hedge Ratios and Hedging Effectiveness in Australian Futures Markets by : Wenling Yang
Download or read book M-GARCH Hedge Ratios and Hedging Effectiveness in Australian Futures Markets written by Wenling Yang and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stock Index Futures by : Charles M.S. Sutcliffe
Download or read book Stock Index Futures written by Charles M.S. Sutcliffe and published by Routledge. This book was released on 2018-01-18 with total page 534 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global value of trading in index futures is about $20 trillion per year and rising and for many countries the value traded is similar to that traded on their stock markets. This book describes how index futures markets work and clearly summarises the substantial body of international empirical evidence relating to these markets. Using the concepts and tools of finance, the book also provides a comprehensive description of the economic forces that underlie trading in index futures. Stock Index Futures 3/e contains many teaching and learning aids including numerous examples, a glossary, essay questions, comprehensive references, and a detailed subject index. Written primarily for advanced undergraduate and postgraduate students, this text will also be useful to researchers and market participants who want to gain a better understanding of these markets.
Book Synopsis The Estimation of the Optimal Hedge Ratio Using Stock Index Futures Contracts by : Dorothea-Hara Arvaniti
Download or read book The Estimation of the Optimal Hedge Ratio Using Stock Index Futures Contracts written by Dorothea-Hara Arvaniti and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Time-Varying Hedge Ratios by : John K. Kuwornu
Download or read book Time-Varying Hedge Ratios written by John K. Kuwornu and published by . This book was released on 2005 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the classic agency model to derive a time-varying optimal hedge ratio for low-frequency time-series data: the type of data used by crop farmers when deciding about production and about their hedging strategy. Rooted in the classic agency framework, the proposed hedge ratio reflects the context of both the crop farmer's decision and the crop farmer's contractual relationships in the marketing channel. An empirical illustration for the Dutch ware potato sector and its futures market in Amsterdam over the period 1971 - 2003 reveals that the time-varying optimal hedge ratio decreased from 0.34 in 1971 to 0.24 in 2003. The hedging effectiveness, according to this ratio, is 39%. These estimates conform better with farmers' interest in using futures contracts for hedging purposes than the much higher estimates obtained when price risk minimisation is the only objective considered.
Book Synopsis Financial Econometrics, Mathematics and Statistics by : Cheng-Few Lee
Download or read book Financial Econometrics, Mathematics and Statistics written by Cheng-Few Lee and published by Springer. This book was released on 2019-06-03 with total page 657 pages. Available in PDF, EPUB and Kindle. Book excerpt: This rigorous textbook introduces graduate students to the principles of econometrics and statistics with a focus on methods and applications in financial research. Financial Econometrics, Mathematics, and Statistics introduces tools and methods important for both finance and accounting that assist with asset pricing, corporate finance, options and futures, and conducting financial accounting research. Divided into four parts, the text begins with topics related to regression and financial econometrics. Subsequent sections describe time-series analyses; the role of binomial, multi-nomial, and log normal distributions in option pricing models; and the application of statistics analyses to risk management. The real-world applications and problems offer students a unique insight into such topics as heteroskedasticity, regression, simultaneous equation models, panel data analysis, time series analysis, and generalized method of moments. Written by leading academics in the quantitative finance field, allows readers to implement the principles behind financial econometrics and statistics through real-world applications and problem sets. This textbook will appeal to a less-served market of upper-undergraduate and graduate students in finance, economics, and statistics.
Book Synopsis Structural Changes and their Econometric Modeling by : Vladik Kreinovich
Download or read book Structural Changes and their Econometric Modeling written by Vladik Kreinovich and published by Springer. This book was released on 2018-11-24 with total page 784 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book focuses on structural changes and economic modeling. It presents papers describing how to model structural changes, as well as those introducing improvements to the existing before-structural-changes models, making it easier to later on combine these models with techniques describing structural changes. The book also includes related theoretical developments and practical applications of the resulting techniques to economic problems. Most traditional mathematical models of economic processes describe how the corresponding quantities change with time. However, in addition to such relatively smooth numerical changes, economical phenomena often undergo more drastic structural change. Describing such structural changes is not easy, but it is vital if we want to have a more adequate description of economic phenomena – and thus, more accurate and more reliable predictions and a better understanding on how best to influence the economic situation.
Book Synopsis Stock Index Futures by : Charles M.S. Sutcliffe
Download or read book Stock Index Futures written by Charles M.S. Sutcliffe and published by Routledge. This book was released on 2018-01-18 with total page 844 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global value of trading in index futures is about $20 trillion per year and rising and for many countries the value traded is similar to that traded on their stock markets. This book describes how index futures markets work and clearly summarises the substantial body of international empirical evidence relating to these markets. Using the concepts and tools of finance, the book also provides a comprehensive description of the economic forces that underlie trading in index futures. Stock Index Futures 3/e contains many teaching and learning aids including numerous examples, a glossary, essay questions, comprehensive references, and a detailed subject index. Written primarily for advanced undergraduate and postgraduate students, this text will also be useful to researchers and market participants who want to gain a better understanding of these markets.
