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Incremental Value of a Futures Hedge Using Realized Ranges

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  • Her‐Jiun Sheu
  • Yu‐Sheng Lai

Abstract

This study investigates the information content of realized ranges for futures hedging. Hedge ratio estimation using generalized autoregressive conditional heteroscedasticity (GARCH) models augmented with intraday price range is proposed. Empirical investigations using the S&P 500 equity index data show that the in‐sample fitting of spot–futures distribution is improved by the information recovered from intraday price ranges. Furthermore, the out‐of‐sample forecasting results show that both the statistical and economic hedging effectiveness increase with the inclusion of intraday price ranges along with intraday and daily price returns. Results indicate that informative realized ranges are valuable for futures hedging. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:676–689, 2014

Suggested Citation

  • Her‐Jiun Sheu & Yu‐Sheng Lai, 2014. "Incremental Value of a Futures Hedge Using Realized Ranges," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(7), pages 676-689, July.
    • Handle: RePEc:wly:jfutmk:v:34:y:2014:i:7:p:676-689
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    Cited by:

    1. Yu‐Sheng Lai, 2018. "Estimation of the optimal futures hedge ratio for equity index portfolios using a realized beta generalized autoregressive conditional heteroskedasticity model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(11), pages 1370-1390, November.
    2. Kuang, Wei, 2022. "The economic value of high-frequency data in equity-oil hedge," Energy, Elsevier, vol. 239(PA).
    3. Hung, Jui-Cheng, 2015. "Evaluation of realized multi-power variations in minimum variance hedging," Economic Modelling, Elsevier, vol. 51(C), pages 672-679.
    4. Kotkatvuori-Örnberg, Juha, 2016. "Dynamic conditional copula correlation and optimal hedge ratios with currency futures," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 60-69.
    5. Yu‐Sheng Lai, 2023. "Optimal futures hedging by using realized semicovariances: The information contained in signed high‐frequency returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(5), pages 677-701, May.

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