The effects of asymmetries and regime switching on optimal futures hedging
This article investigates the effects of asymmetries and regime switching on futures hedging effectiveness by using an asymmetric Markov regime switching BEKK GARCH (ARSBEKK) model. Hedging performance is evaluated from both a risk-minimization and a utility standpoint. Out-of-sample estimates based on Nikkei 225 stock index futures data show that when we take the asymmetric effect into consideration, the hedging effectiveness is improved in both state-dependent and state-independent cases. In sample, we have the best hedging performance when hedge ratios are both state-dependent and asymmetric. Results also show that all dynamic hedging methods considered in this article create utility gains compared to the conventional ordinary least square hedge.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.