IDEAS home Printed from https://ideas.repec.org/a/ibf/ijbfre/v3y2009i2p131-145.html
   My bibliography  Save this article

The Use Of Term Structure Information In The Hedging Of Japanese Government Bonds

Author

Listed:
  • Jian-Hsin Chou
  • Chien-Yun Chang
  • Chen-Yu Chen

Abstract

This paper employs the Kalman filter to explore the impact of term structure variables in the hedging of Japanese Government Bonds (JGBs) with treasury futures. The term structure factors (level parameter 0 β , slope parameter 1 β , and curvature parameter, 2 β ) are based on Nelson and Siegel (1987) model. The out-of-sample hedging performance is also provided by moving window technology. The empirical results show the existence of significant relationships among the term structure factors, the earlier hedge ratio, and the optimal hedge ratio. However, the time-varying hedge ratio (which includes the term structure variables from the information set) did not provide good out-of-sample hedging effectiveness. Nevertheless, the out-of-sample results did demonstrate that the performance of the timevarying hedge ratio with term structure variables is better than a hedge ratio with a naive hedge or OLS model in the 7–10-year Japanese Government Bond index.

Suggested Citation

  • Jian-Hsin Chou & Chien-Yun Chang & Chen-Yu Chen, 2009. "The Use Of Term Structure Information In The Hedging Of Japanese Government Bonds," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 131-145.
    • Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:2:p:131-145
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n2-2009/IJBFR-V3N2-2009-10.pdf
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    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:ibf:ijbfre:v:3:y:2009:i:2:p:131-145. 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: Mercedes Jalbert (email available below). General contact details of provider: .

    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.