Stochastic optimal hedge ratio: theory and evidence

Abdulnasser Hatemi-J and Youssef El-Khatib

Applied Economics Letters, 2012, vol. 19, issue 8, 699-703

Abstract: The minimum variance hedge ratio is widely used by investors to immunize against the price risk. This hedge ratio is usually assumed to be constant across time by practitioners, which might be a too restrictive assumption because the Optimal Hedge Ratio (OHR) might vary across time. In this article we put forward a proposition that a stochastic OHR performs differently than an OHR with constant structure even in the situations in which the mean value of the stochastic OHR is equal to the constant OHR. A mathematical proof is provided for this proposition combined with some simulation results and an application to the US stock market during 1999--2009 using weekly data.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2011.572841 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Stochastic optimal hedge ratio: Theory and evidence (2010)
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:taf:apeclt:v:19:y:2012:i:8:p:699-703

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2011.572841

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().