Hedging effectiveness of the Athens stock index futures contracts
Manolis Kavussanos () and
Ilias Visvikis ()
The European Journal of Finance, 2008, vol. 14, issue 3, 243-270
This paper examines the hedging effectiveness of the FTSE/ATHEX-20 and FTSE/ATHEX Mid-40 stock index futures contracts in the relatively new and fairly unresearched futures market of Greece. Both in-sample and out-of-sample hedging performances using weekly and daily data are examined, considering both constant and time-varying hedge ratios. Results indicate that time-varying hedging strategies provide incremental risk-reduction benefits in-sample, but under-perform simple constant hedging strategies out-of-sample. Moreover, futures contracts serve effectively their risk management role and compare favourably with results in other international stock index futures markets. Estimation of investor utility functions and corresponding optimal utility maximising hedge ratios yields similar results, in terms of model selection. For the FTSE/ATHEX Mid-40 contracts we identify the existence of speculative components, which lead to utility-maximising hedge ratios, that are different to the minimum variance hedge ratio solutions.
Keywords: hedging effectiveness; futures markets; constant and time-varying hedge ratios; utility functions; VECM-GARCH-X (search for similar items in EconPapers)
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