Hedging with the International Equity Index Futures: The Conventional Model versus the Error Correction Model

Fu-Lai Lin, Cheng Few Lee, Win-Lin Chou and Dennis Kin-Keung Fan

Chapter 45 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 1513-1524 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter estimates and compares the hedge ratios of the conventional and the error correction models using three advanced international stock markets with different time intervals. Comparisons of out-of-sample hedging performance reveal that the error correction model outperforms the conventional model, suggesting that the hedge ratios obtained by using the error correction model do a better job in reducing the risk of the cash position than those from the conventional model. In addition, this chapter evaluates the effects of temporal aggregation on hedge ratios. It is found that temporal aggregation has important effects on the hedge ratio estimates.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811269943_0045 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811269943_0045 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811269943_0045

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().