IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v27y2007i5p495-516.html
   My bibliography  Save this article

Optimal hedging with a regime‐switching time‐varying correlation GARCH model

Author

Listed:
  • Hsiang‐Tai Lee
  • Jonathan Yoder

Abstract

The authors develop a Markov regime‐switching time‐varying correlation generalized autoregressive conditional heteroscedasticity (RS‐TVC GARCH) model for estimating optimal hedge ratios. The RS‐TVC nests within it both the time‐varying correlation GARCH (TVC) and the constant correlation GARCH (CC). Point estimates based on the Nikkei 225 and the Hang Seng index futures data show that the RS‐TVC outperforms the CC and the TVC both in‐ and out‐of‐sample in terms of variance reduction. Based on H. White's (2000) reality check, the null hypothesis of no improvement of the RS‐TVC over the TVC is rejected for the Nikkei 225 index contract but is not rejected for the Hang Seng index contract. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:495–516, 2007

Suggested Citation

  • Hsiang‐Tai Lee & Jonathan Yoder, 2007. "Optimal hedging with a regime‐switching time‐varying correlation GARCH model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(5), pages 495-516, May.
    • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:5:p:495-516
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:27:y:2007:i:5:p:495-516. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.