Restricted VAR Hedging with the Presence of Multiple Breaks

Grzegorz Michalski
Additional contact information
Grzegorz Michalski: Graduate Institute of Money, Banking and Finance, TamKang University, Taipei, Taiwan Department of Finance and Banking, Shih-Chien University, Taipei, Taiwan Department of Finance, Ching-Yun University, Jung-Li City, Taiwan

Zagreb International Review of Economics and Business, 2007, vol. 10, issue 1, 1-10

Abstract: Distinct from the existing literatures that most of them focussed on the case of a single change on issues related to structural change. This study addresses the practical advantage of hedging ratio when time varying structural breakings are considered. Data used in this study include daily observations of spot prices of WTI (Cushing, Oklahoma FOB), U.S. crude oil production, and futures closing prices of NYMEX over the period of 2002/1/2 ~ 2005/7/26. We compare on out-of-sample hedging effectiveness of this structural break with restricted VAR hedging model against standard VAR hedge model. It has been found that there are four structural breaks. And the improvement in hedging performance is clearly presented. Smaller hedging of a futures position can therefore reduce the investors cost extensively.

Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.efzg.hr/default.aspx?id=8101 (text/html)
Abstract only available on-line

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:zag:zirebs:v:10:y:2007:i:1:p:1-10

Ordering information: This journal article can be ordered from
Zagreb International Review of Economics and Business, Faculty of Economics and Business, Trg J. F. Kennedy 6, 10000 Zagreb, Croatia.
http://www.efzg.hr/default.aspx?id=6045

Access Statistics for this article

Zagreb International Review of Economics and Business is currently edited by Soumitra Sharma

More articles in Zagreb International Review of Economics and Business from Faculty of Economics and Business, University of Zagreb Contact information at EDIRC.
Bibliographic data for series maintained by Jurica Šimurina ( this e-mail address is bad, please contact ).