Futures Hedge Profit Measurement, Error-Correction Model vs Regression Approach Hedge Ratios and Data Error Effects

Robert Ferguson and Dean Leistikow

Financial Management, 1999, vol. 28, issue 4

Abstract: This study explains why a modified regression method, which calculates hedge profits and hedge ratios using cost-of-carry-adjusted price changes, provides greater accuracy than the unadjusted regression method. It shows that the modified regression method and the error-correction model lead to similar hedging performance unless there are significant data errors.

Date: 1999
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