The effect of the rebalancing horizon on the tradeoff between hedging effectiveness and transaction costs

Boonlert Jitmaneeroj

International Review of Economics & Finance, 2018, vol. 58, issue C, 282-298

Abstract: This paper examines the impact of the rebalancing horizon on the transaction costs per hedging effectiveness (TC/HE ratio) for dynamic hedging of the S&P 500 index with 21 commodity indices. This paper produces new evidence that as the rebalancing horizon lengthens, the TC/HE ratio exhibits a monotonically decreasing relationship with positive convexity. This asymmetric effect suggests that hedgers pay more attention to reductions rather than increases in the rebalancing horizons and hedging strategies at short rather than long rebalancing horizons. Although commodities can be used to hedge equity portfolios, they should be used with caution given their low hedging effectiveness.

Keywords: Hedge ratio; Hedging effectiveness; Transaction cost; Rebalancing horizon; Hedging horizon; C32; G11; G13; Q02 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017304136
Full text for ScienceDirect subscribers only

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:eee:reveco:v:58:y:2018:i:c:p:282-298

DOI: 10.1016/j.iref.2018.03.027

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().