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Effects of omitting information variables on optimal hedge ratio estimation: A note

Donald Lien

Journal of Futures Markets, 2010, vol. 30, issue 8, 795-800

Abstract: Suppose that there is an information variable (with error correction variable being a special case) affecting the spot price but not the futures price. The estimated optimal hedge ratio is unbiased but inefficient when this variable is omitted. In addition, the resulting hedging effectiveness is smaller than that provided by the efficient hedge ratio. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:795–800, 2010

Date: 2010
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