Fractional cointegration and futures hedging

Article Abstract:

The performance of various hedge ratios derived from the NSA, ARFIMA-GARCH, EC and VAR econometric models have been examined. Results indicate that the inclusion of a conditional heteroskedasticity improves hedging performance. The EC model has a bigger hedge ratio than the FIEC model and performs better in a return-risk context. EC hedging with conditional heteroskedasticity is the prevailing strategy but using fractional cointegration does not improve its performance. The regression method generates the worst hedging results for hedge horizons of five days or more.

Futures market, Futures markets

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Reply to "A comment on 'A hedging deficiency in eurodollar futures' "

Article Abstract:

The possibility of a perfect hedge with respect to eurodollar futures contract and the role of hedge sizing in achieving hedge perfection are analyzed.

United States, Forecasts, trends, outlooks, Economic aspects, Forecasts and trends, Market trend/market analysis, Foreign exchange futures

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