On the stationarity of futures hedge ratios

Stavros Degiannakis, Christos Floros, Enrique Salvador () and Dimitrios Vougas ()
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Enrique Salvador: Universitat Jaume I
Dimitrios Vougas: Swansea University, Bay Campus

Operational Research, 2022, vol. 22, issue 3, No 21, 2303 pages

Abstract: Abstract Stationarity of hedge ratios can be viewed as a first step for portfolio hedging since it represents that the sensitivity of spot and Future returns follow a process whose main characteristics do not depend on time. However, we provide evidence that the hedge ratios of the main European stock indices are better described as a combination of two different mean-reverting stationary processes, which depend on the state of the market. Also, when analysing the dynamics of hedge ratios at intraday level, results display a similar picture suggesting that intraday dynamics of the hedge between spot and Future are driven mainly by market participants with similar perspectives of the investment horizon.

Keywords: Future; Hedge ratios; Intra-day data; Multivariate volatility modelling; Regime-switching; Stationarity (search for similar items in EconPapers)
JEL-codes: C32 C58 G13 G15 (search for similar items in EconPapers)
Date: 2022
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Working Paper: On the Stationarity of Futures Hedge Ratios (2020)
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DOI: 10.1007/s12351-020-00607-0

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