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Type: Journal article
Title: Optimal hedge ratios and alternative hedging strategies in the presence of cointegrated time-varying risks
Author: Sim, A.
Zurbrugg, R.
Citation: The European Journal of Finance, 2001; 7(3):269-283
Publisher: Routledge
Issue Date: 2001
ISSN: 1351-847X
Statement of
Ah-Boon Sim; Ralf Zurbruegg
Abstract: This paper utilizes the inter-temporal relationship between the FTSE-100 stock index and its futures price level between 1992 and 1999 to examine the characteristics of several minimum variance hedge ratios and the performances of several alternative hedging strategies for dynamic portfolio management in the presence of cointegrated timevarying risks. Earlier studies neglected the importance of cointegration between the two variables which resulted in biased estimates. These studies, in general, also assume that the hedging period is the same as the estimation time interval. This paper also looks at several key issues when the holding period is longer than the estimation period, such as the construction of optimal minimum variance hedge ratios, and the trade-off between transaction costs and risk reduction.
Keywords: Hedge; Ratios; Hedging; Strategies; Cointegrated; Time-VARYING; Risk; Ftse-100
Rights: © Informa plc
RMID: 0020011937
DOI: 10.1080/13518470110046153
Appears in Collections:Business School publications

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