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The Superiority of Time-Varying Hedge Ratios in Turkish Futures


  • Onur Olgun

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

  • Ý. Hakan Yetkiner

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


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.

Suggested Citation

  • Onur Olgun & Ý. Hakan Yetkiner, 2009. "The Superiority of Time-Varying Hedge Ratios in Turkish Futures," Working Papers 0907, Izmir University of Economics.
  • Handle: RePEc:izm:wpaper:0907

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    References listed on IDEAS

    1. Ayla Ogus & Niloufer Sohrabji, 2008. "Analyzing the Present Sustainability of Turkey’s Current Account Position," Working Papers 0803, Izmir University of Economics.
    2. Thorbecke Willem, 2006. "How Would an Appreciation of the Renminbi Affect the U.S. Trade Deficit with China?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-17, December.
    3. Alper, C. Emre & Saglam, Ismail, 1999. "The Equilibrium Real Exchange Rate: Evidence from Turkey," MPRA Paper 1924, University Library of Munich, Germany.
    4. Bahmani-Oskooee, Mohsen & Niroomand, Farhang, 1998. "Long-run price elasticities and the Marshall-Lerner condition revisited," Economics Letters, Elsevier, vol. 61(1), pages 101-109, October.
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    More about this item


    Futures Pricing; Hedging; MGARCH; Hedging Effectiveness;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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