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Commodity Price Correlation and Time varying Hedge Ratios

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  • Amine Lahiani
  • Khaled Guesmi

Abstract

This paper examines the price volatility and hedging behavior of commodity futures indices and stock market indices. We investigate the weekly hedging strategies generated by return-based and range-based asymmetric dynamic conditional correlation (DCC) pr

Suggested Citation

  • Amine Lahiani & Khaled Guesmi, 2014. "Commodity Price Correlation and Time varying Hedge Ratios," Working Papers 2014-142, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2014-142
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    File URL: https://faculty-research.ipag.edu/wp-content/uploads/recherche/WP/IPAG_WP_2014_142.pdf
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    References listed on IDEAS

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    3. Choudhry, Taufiq, 2003. "Short-run deviations and optimal hedge ratio: evidence from stock futures," Journal of Multinational Financial Management, Elsevier, vol. 13(2), pages 171-192, April.
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    5. Ray Chou & Chun-Chou Wu & Nathan Liu, 2009. "Forecasting time-varying covariance with a range-based dynamic conditional correlation model," Review of Quantitative Finance and Accounting, Springer, vol. 33(4), pages 327-345, November.
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    8. Lien, Donald, 2004. "Cointegration and the optimal hedge ratio: the general case," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(5), pages 654-658, December.
    9. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    10. El Hedi Arouri, Mohamed & Jouini, Jamel & Nguyen, Duc Khuong, 2011. "Volatility spillovers between oil prices and stock sector returns: Implications for portfolio management," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1387-1405.
    11. Billio, Monica & Caporin, Massimiliano, 2009. "A generalized Dynamic Conditional Correlation model for portfolio risk evaluation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(8), pages 2566-2578.
    12. Baillie, Richard T & Myers, Robert J, 1991. "Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-124, April-Jun.
    13. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    14. repec:bla:jecsur:v:16:y:2002:i:3:p:357-96 is not listed on IDEAS
    15. Hafner, C.M. & Franses, Ph.H.B.F., 2003. "A generalized dynamic conditional correlation model for many asset returns," Econometric Institute Research Papers EI 2003-18, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    16. Chen, Yi-Ting & Ho, Keng-Yu & Tzeng, Larry Y., 2014. "Riskiness-minimizing spot-futures hedge ratio," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 154-164.
    17. McAleer, Michael & Chan, Felix & Hoti, Suhejla & Lieberman, Offer, 2008. "Generalized Autoregressive Conditional Correlation," Econometric Theory, Cambridge University Press, vol. 24(6), pages 1554-1583, December.
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    Keywords

    Range-based Dynamic Conditional Correlation; Downside Risk; Transaction Costs;
    All these keywords.

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