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Hedging and Optimal Hedge Ratios for International Index Futures Markets

Listed author(s):
  • Cheng-Few Lee

    (School of Business, Rutgers University, Piscataway, New Jersey 08854-8054, USA)

  • Kehluh Wang


    (Graduate Institute of Finance, National Chiao Tung University, 1001 University Road, Hsinchu, 300, Taiwan)

  • Yan Long Chen

    (Taiwan International Securities Group, No. 97, Sec. 2, Dunhua S. Rd., Taipei, 106, Taiwan)

Registered author(s):

    This empirical study utilizes four static hedging models (OLS Minimum Variance Hedge Ratio, Mean-Variance Hedge Ratio, Sharpe Hedge Ratio, and MEG Hedge Ratio) and one dynamic hedging model (bivariate GARCH Minimum Variance Hedge Ratio) to find the optimal hedge ratios for Taiwan Stock Index Futures, S&P 500 Stock Index Futures, Nikkei 225 Stock Index Futures, Hang Seng Index Futures, Singapore Straits Times Index Futures, and Korean KOSPI 200 Index Futures. The effectiveness of these ratios is also evaluated. The results indicate that the methods of conducting optimal hedging in different markets are not identical. However, the empirical results confirm that stock index futures are effective direct hedging instruments, regardless of hedging schemes or hedging horizons.

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    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 12 (2009)
    Issue (Month): 04 ()
    Pages: 593-610

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    Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:04:p:593-610
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