Hedging with Chinese metal futures
AbstractThis paper evaluates different hedging strategies for aluminum and copper futures contracts traded at Shanghai Futures Exchange. In addition to usual candidates such as the traditional regression hedge ratio and the hedging strategy constructed from bivariate fractionally integrated generalized autoregressive conditional heteroskedasticity (BFIGARCH) model, two advanced specifications are proposed to account for impacts of the basis on market volatility and co-movements between spot and futures returns. Empirical results suggest that the basis has asymmetric effects and optimal hedging strategy constructed from the asymmetric BFIGARCH model tends to produce the best in-sample and out-of-sample hedging performance.
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Bibliographic InfoArticle provided by Elsevier in its journal Global Finance Journal.
Volume (Year): 19 (2008)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620162
C13 C32 G13 Time-varying variance and correlation Long memory in volatility Dynamic hedging Chinese metal futures markets;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Chi - Mathematical and Quantitative Methods - - - - -
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