IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v25y2005i12p1173-1202.html
   My bibliography  Save this article

Structurally sound dynamic index futures hedging

Author

Listed:
  • Paul Kofman
  • Patrick McGlenchy

Abstract

Portfolio managers use index futures for a variety of reasons. Regardless of their motivation, they will keep a close eye on the relation between the index futures returns and their stock‐portfolio returns. Whenever this relation is perceived to have changed, the manager will decide whether it is worthwhile to rebalance the index futures—portfolio mix accordingly. Exact measures as to when and how much rebalancing should occur have not yet been established. This article proposes a dynamic hedging algorithm based on a reverse order CUSUM‐squared (ROC) testing procedure, first discussed in M. H. Pesaran and A. Timmermann (2002). A comparison with standard alternatives (naïve, expanding, EWLS, and rolling estimation windows) finds limited improvements in hedging performance, both in‐ and out‐of‐sample. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1173–1202, 2005

Suggested Citation

  • Paul Kofman & Patrick McGlenchy, 2005. "Structurally sound dynamic index futures hedging," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(12), pages 1173-1202, December.
    • Handle: RePEc:wly:jfutmk:v:25:y:2005:i:12:p:1173-1202
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qu, Hui & Wang, Tianyang & Zhang, Yi & Sun, Pengfei, 2019. "Dynamic hedging using the realized minimum-variance hedge ratio approach – Examination of the CSI 300 index futures," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    2. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.

    More about this item

    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:wly:jfutmk:v:25:y:2005:i:12:p:1173-1202. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    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.