Next Article in Journal
Do Diamond Stocks Shine Brighter than Diamonds?
Previous Article in Journal
Dynamic Expectation Theory: Insights for Market Participants
Previous Article in Special Issue
News Co-Occurrences, Stock Return Correlations, and Portfolio Construction Implications
Article Menu
Issue 2 (June) cover image

Export Article

Open AccessArticle

Carry Cost Rate Regimes and Futures Hedge Ratio Variation

Gabelli School of Business, Fordham University, New York, NY 10023, USA
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(2), 78; https://doi.org/10.3390/jrfm12020078
Received: 19 March 2019 / Revised: 29 April 2019 / Accepted: 30 April 2019 / Published: 3 May 2019
(This article belongs to the Collection Empirical Asset Pricing)
  |  
PDF [847 KB, uploaded 30 May 2019]
  |  

Abstract

This paper tests whether the traditional futures hedge ratio (hT) and the carry cost rate futures hedge ratio (hc) vary in accordance with the Sercu and Wu (2000) and Leistikow et al. (2019) “hc” theory. It does so, both within and across high and low spot asset carry cost rate (c) regimes. The high and low c regimes are specified by asset across time and across currency denominations. The findings are consistent with the theory. Within and across c regimes, hT is inefficient and hc is biased. Across c regimes, hc’s Bias Adjustment Multiplier (BAM) does not vary significantly. Even though hc’s bias-adjusted variant’s BAM is restricted to old data that is from a different c regime, the hedging performance of hc and its bias-adjusted variant (=hc × BAM), are superior to that for hT. Variation in c may account for the hT variation noted in the literature and variation in c should be incorporated into ex ante hedge ratios. View Full-Text
Keywords: carry cost rate; futures hedge ratio carry cost rate; futures hedge ratio
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Leistikow, D.; Chen, R.-R. Carry Cost Rate Regimes and Futures Hedge Ratio Variation. J. Risk Financial Manag. 2019, 12, 78.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top