IDEAS home Printed from
   My bibliography  Save this article

An empirical analysis of the relationship between hedge ratio and hedging horizon using wavelet analysis


  • Donald Lien
  • Keshab Shrestha


In this article, optimal hedge ratios are estimated for different hedging horizons for 23 different futures contracts using wavelet analysis. The wavelet analysis is chosen to avoid the sample reduction problem faced by the conventional methods when applied to non‐overlapping return series. Hedging performance comparisons between the wavelet hedge ratio and error‐correction (EC) hedge ratio indicate that the latter performs better for more contracts for shorter hedging horizons. However, the performance of the wavelet hedge ratio improves with the increase in the length of the hedging horizon. This is true for both within‐sample and out‐of‐sample cases. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:127–150, 2007

Suggested Citation

  • Donald Lien & Keshab Shrestha, 2007. "An empirical analysis of the relationship between hedge ratio and hedging horizon using wavelet analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(2), pages 127-150, February.
  • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:2:p:127-150

    Download full text from publisher

    File URL:
    Download Restriction: no


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

    Cited by:

    1. repec:eee:phsmap:v:503:y:2018:i:c:p:86-104 is not listed on IDEAS
    2. repec:eee:ejores:v:272:y:2019:i:3:p:1132-1142 is not listed on IDEAS
    3. repec:eee:reveco:v:58:y:2018:i:c:p:282-298 is not listed on IDEAS
    4. Hou, Yang & Holmes, Mark, 2017. "On the effects of static and autoregressive conditional higher order moments on dynamic optimal hedging," MPRA Paper 82000, University Library of Munich, Germany.
    5. repec:eee:pacfin:v:54:y:2019:i:c:p:13-28 is not listed on IDEAS
    6. Conlon, Thomas & Cotter, John, 2013. "Downside risk and the energy hedger's horizon," Energy Economics, Elsevier, vol. 36(C), pages 371-379.
    7. repec:eee:eneeco:v:63:y:2017:i:c:p:92-105 is not listed on IDEAS
    8. repec:eee:energy:v:169:y:2019:i:c:p:895-913 is not listed on IDEAS
    9. repec:eee:eneeco:v:71:y:2018:i:c:p:253-272 is not listed on IDEAS
    10. Dai, Jun & Zhou, Haigang & Zhao, Shaoquan, 2017. "Determining the multi-scale hedge ratios of stock index futures using the lower partial moments method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 466(C), pages 502-510.

    More about this item


    Access and download statistics


    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:27:y:2007:i:2:p:127-150. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: .

    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 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.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.