International Hedge Ratios for Index Futures Market: A Simultaneous Equations Approach

Cheng Few Lee, Fu-Lai Lin and Mei-Ling Chen

Chapter 51 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 1637-1647 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The main purpose of this chapter is to investigate hedge ratios in terms of the international index futures markets. Instead of looking at hedging in a single market, we here construct a simultaneous equations system to study the index hedging in the light of the cross-country linkage and interaction. The three-stage least squares (3SLS) estimating procedure is then applied to S&P500, FTSE100, and NIKKEI225 indices over the period 1990–2020. The empirical results indicate that the cross-country hedging strategy in both markets is feasible and the investors can bring down the holding position in own futures market. Moreover, the hedging effectiveness of cross-country hedging strategy performs better than the traditional single market hedging strategy in terms of the percentage reduction in variance.

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_0051 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811269943_0051 (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_0051

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 ().