The Superiority of Time-Varying Hedge Ratios in Turkish Futures

Onur Olgun and Ibrahim Yetkiner ()
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Onur Olgun: Department of International Trade and Finance, Izmir University of Economics

No 907, Working Papers from Izmir University of Economics

Abstract: This paper aims to compare the effectiveness of constant hedge ratio estimates (obtained through OLS and VECM methods) and time-varying hedge ratio estimates (obtained via M-GARCH method) for future contracts of ISE-30 index of TurkDEX. We use portfolio variance reduction as the measure of hedging effectiveness. We find that time-varying hedge ratios outperform the constant ratios for both in-sample and out-of-sample datasets and provide the minimum variance values.

Keywords: Futures Pricing; Hedging; MGARCH; Hedging Effectiveness (search for similar items in EconPapers)
JEL-codes: G13 G17 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2009-11
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:izm:wpaper:0907

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