The effect of the cointegration relationship on futures hedging: a note
Article Abstract:
A hedger who ignores the cointegration relationship when spot and futures prices are cointegrated will always take a smaller than optimal futures position, thus resulting in a relatively unfavorable hedge performance. A simple linear regression model likewise indicates that the cost for the errant hedger is greater when spot and future prices are more responsive to the cointegration relationship. This is because losses in hedge performance borne by the errant hedger increase as spot and futures prices become more responsive to the deviation from the long-run equilibrium relationship.
Publication Name: Journal of Futures Markets
Subject: Business, general
ISSN: 0270-7314
Year: 1996
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On the conventional definition of currency hedge ratio
Article Abstract:
The conventional definition of hedge ratio used by institutional investors when there are multiple cash assets is inappropriate. Defined as the ratio of the futures position to the cash position of the foreign asset, it lacks the usual meaning as in a single cash asset. No positive relationship between the magnitude of the conventional hedge ratio and the usefulness of the futures contract exists in the presence of multiple cash assets. Consequently, no information on the relative significance of currency hedging is offered by the comparison of hedge ratios.
Publication Name: Journal of Futures Markets
Subject: Business, general
ISSN: 0270-7314
Year: 1996
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Application of mean-variance analysis to broad-based futures contracts
Article Abstract:
Mean-variance (MV) analysis is evaluated as an approximation of the expected utility (EU) approach using a broad based futures contracts model. The model shows a unidirectional bias always resulting from an analysis of short or long hedgers. The efficiency of MV analysis as a fair estimate of the EU approach hinges on a hedger's spot market inactivity. The bias produced by the hedgers is determined to a large extent by the degree of risk aversion.
Publication Name: Journal of Futures Markets
Subject: Business, general
ISSN: 0270-7314
Year: 1992
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