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Comparing Trading Performance of the Constant and Dynamic Hedge Models: A Note

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  • Yeh, Sally C
  • Gannon, Gerard L
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    Abstract

    The constant and dynamic hedge models, with the presence of transaction costs are compared for the Share Price Index futures contract trading on the Sydney Futures Exchange. The optimal hedge ratio is estimated by using a dynamic, bivariate two-stage model for the return equation with a dynamic GARCH error structure for the conditional hedge ratios. When portfolio projections are compared based on their profit positions (net of transaction costs), the GARCH hedge model dominates the next best competitor in terms of trading profit. Copyright 2000 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

    Volume (Year): 14 (2000)
    Issue (Month): 2 (March)
    Pages: 155-60

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    Handle: RePEc:kap:rqfnac:v:14:y:2000:i:2:p:155-60

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    Web page: http://springerlink.metapress.com/link.asp?id=102990

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    Cited by:
    1. Prasad Bhattacharaya & Harminder Singh & Gerard Gannon, 2006. "Time-Varying Hedge Ratios: An Application to the Indian Stock Futures Market," Accounting, Finance, Financial Planning and Insurance Series, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance 2006_03, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    2. Michael T. Chng & Gerard L. Gannon, 2008. "The Trading Performance of Dynamic Hedging Models: Time Varying Covariance and Volatility Transmission Effects," Accounting, Finance, Financial Planning and Insurance Series, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance 2008_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    3. Wagner Oliveira Monteiro & Rodrigo De Losso da Silveira Bueno, 2011. "Dynamic Hedging inMarkov Regimes Switching," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 136, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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