Hedging with Futures: Does Anything Beat the Naïve Hedging Strategy?

This paper investigates out-of-sample performance of the naïve hedging strategy relative to that of the minimum variance hedging strategy, in which the covariance parameters are estimated from 18 econometric models. Hedging performance is compared across 24 futures markets. Our main findings suggest...

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Vydáno v:Management science Ročník 61; číslo 12; s. 2870 - 2889
Hlavní autoři: Wang, Yudong, Wu, Chongfeng, Yang, Li
Médium: Journal Article
Jazyk:angličtina
Vydáno: Linthicum INFORMS 01.12.2015
Institute for Operations Research and the Management Sciences
Témata:
Analysis of covariance
Econometrics
Estimation
estimation error
Futures market
Hedges
Hedging
Hedging (Finance)
hedging with futures
Methods
minimum variance hedge ratios
model misspecification
naïve strategy
Parameter estimation
Strategies
ISSN:0025-1909, 1526-5501
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Shrnutí:This paper investigates out-of-sample performance of the naïve hedging strategy relative to that of the minimum variance hedging strategy, in which the covariance parameters are estimated from 18 econometric models. Hedging performance is compared across 24 futures markets. Our main findings suggest that it is difficult to find a strategy under the minimum variance framework that outperforms the naïve hedging strategy both consistently and significantly. Our findings are robust to different sample periods, estimation windows, and hedging horizons and can be partly explained by the effects of estimation error and model misspecification. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2028 . This paper was accepted by Itay Goldstein, finance.
Bibliografie:ObjectType-Article-1
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ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2014.2028