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The Superiority of Time-Varying Hedge Ratios in Turkish Futures

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Author Info

  • Onur Olgun

    (Department of International Trade and Finance, Izmir University of Economics)

  • Ý. Hakan Yetkiner

    ()
    (Department of Economics, Izmir University of Economics)

Abstract

This paper aims to compare the effectiveness of constant hedge ratio estimates (obtained through OLS and VECM methods) and time-varying hedge ratio estimates (obtained via M-GARCH method) for future contracts of ISE-30 index of TurkDEX. We use portfolio variance reduction as the measure of hedging effectiveness. We find that time-varying hedge ratios outperform the constant ratios for both in-sample and out-of-sample datasets and provide the minimum variance values.

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File URL: http://eco.ieu.edu.tr/wp-content/wp0907.pdf
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Bibliographic Info

Paper provided by Izmir University of Economics in its series Working Papers with number 0907.

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Length: 15 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:izm:wpaper:0907

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Postal: Sakarya Caddesi, No:156 35330 Balçova - İzmir
Fax: (90) 232 279 2626
Web page: http://eco.ieu.edu.tr
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Related research

Keywords: Futures Pricing; Hedging; MGARCH; Hedging Effectiveness;

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