Value of hedge and expected returns

Jinpeng Ma (), Max Tang and Yuming Wang

Applied Economics, 2016, vol. 48, issue 36, 3373-3398

Abstract: We demonstrate how it is possible to generate value for an investor with a hedge attached to the buy-and-hold strategy of an S&P 500 index fund. We study the S&P 500 index portfolio (not including dividends) and the value-weighted S&P 500 index portfolio (including dividends) of the Center for Research in Securities Prices for 1967:01--2011:12, using the capacity utilization and the unemployment rates in real time to determine if a hedge position should be initiated or closed. A hedge is initiated if the capacity utilization, the unemployment rate or a combination of the two signals a contraction in the real economy. The hedge position is closed if it signals otherwise an expansion. We use utility gains (Campbell and Thompson 2008), the manipulation-proof performance measure (MPPM) statistics (Ingersoll et al. 2007) and the P-Sharpe ratio (Bailey and López de Prado 2012) to evaluate the performance of a particular hedge strategy. The empirical results show that there are infinitely many hedges that can generate positive utility gains, higher MPPM statistics and higher P-Sharpe ratios.

Date: 2016
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2016.1139675 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:48:y:2016:i:36:p:3373-3398

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2016.1139675

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

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