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Hedging with Chinese metal futures

Donald Lien and Li Yang ()

Global Finance Journal, 2008, vol. 19, issue 2, 123-138

Abstract: This paper evaluates different hedging strategies for aluminum and copper futures contracts traded at Shanghai Futures Exchange. In addition to usual candidates such as the traditional regression hedge ratio and the hedging strategy constructed from bivariate fractionally integrated generalized autoregressive conditional heteroskedasticity (BFIGARCH) model, two advanced specifications are proposed to account for impacts of the basis on market volatility and co-movements between spot and futures returns. Empirical results suggest that the basis has asymmetric effects and optimal hedging strategy constructed from the asymmetric BFIGARCH model tends to produce the best in-sample and out-of-sample hedging performance.

Keywords: C13; C32; G13; Time-varying; variance; and; correlation; Long; memory; in; volatility; Dynamic; hedging; Chinese; metal; futures; markets (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:19:y:2008:i:2:p:123-138

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