This article investigates the effects of asymmetries and regime switching on futures hedging effectiveness by using an asymmetric Markov regime switching BEKK GARCH (ARSBEKK) model. Hedging performance is evaluated from both a risk-minimization and a utility standpoint. Out-of-sample estimates based on Nikkei 225 stock index futures data show that when we take the asymmetric effect into consideration, the hedging effectiveness is improved in both state-dependent and state-independent cases. In sample, we have the best hedging performance when hedge ratios are both state-dependent and asymmetric. Results also show that all dynamic hedging methods considered in this article create utility gains compared to the conventional ordinary least square hedge.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.