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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;
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]


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

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

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J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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