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The Superiority of Time-Varying Hedge Ratios in Turkish Futures

Author

Listed:
  • Onur Olgun

    (Department of International Trade and Finance, Izmir University of Economics)

  • Ý. Hakan Yetkiner

    (Department of Economics, 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.

Suggested Citation

  • Onur Olgun & Ý. Hakan Yetkiner, 2009. "The Superiority of Time-Varying Hedge Ratios in Turkish Futures," Working Papers 0907, Izmir University of Economics.
    • Handle: RePEc:izm:wpaper:0907
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    More about this item

    Keywords

    Futures Pricing; Hedging; MGARCH; Hedging Effectiveness;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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