The Hedging Effectiveness of U.K. Stock Index Futures Contracts Using an Extended Mean Gini Approach: Evidence for the FTSE 100 and FTSE Mid250 Contracts

Darren Butterworth and Phil Holmes
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Darren Butterworth: Charles River Associates, London, U.K.
Phil Holmes: University of Durham, Durham, U.K.

Multinational Finance Journal, 2005, vol. 9, issue 3-4, 131-160

Abstract: This paper provides the first investigation of the hedging effectiveness of the FTSE 100 and FTSE Mid 250 stock index futures contracts using hedge ratios generated within an extended mean Gini framework. This framework provides a robust alternative to the standard minimum variance approach, by distinguishing between different classes of risk aversion and producing hedge ratios that are consistent with the rules of stochastic dominance. The results show that the appropriate hedge ratio varies considerably with the investor’s degree of risk aversion and that the EMG approach is capable of being utilized by all classes of risk averse investors, in contrast to the standard minimum variance approach. In addition, the results show strong evidence of a duration effect and support the use of the extended mean Gini approach when cross hedges are involved.

Keywords: hedging; futures; mean-gini; risk aversion (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:9:y:2005:i:3-4:p:131-160

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