Calculating the optimal hedge ratio: constant, time varying and the Kalman Filter approach

References

• Baillie , RT and Myers , RJ . 1991 . Bivariate GARCH estimation of the optimal commodity futures hedge . Journal of Applied Econometrics , 6 : 109 – 24 .
   Web of Science ®Google Scholar
• Brown , JP , Song , H and McGillivray , A . 1997 . Forecasting UK house prices: a time varying coefficient approach . Economic Modelling , 14 : 529 – 48 .
   Web of Science ®Google Scholar
• Butterworth , D and Holmes , P . 2001 . The hedging effectiveness of stock index futures: evidence for the FTSE-100 and FTSE-Mid250 indexes traded in the UK . Applied Financial Economics , 11 : 57 – 68 .
   Google Scholar
• Bystrom , HNE . 2003 . The hedging performance of electricity futures on the Nordic power exchange . Applied Economics , 1 : 1 – 11 .
   Google Scholar
• Cecchetti , SG , Cumby , RE and Figlewski , S . 2001 . Estimation of the optimal futures hedge . Review of Economics and Statistics , 70 : 623 – 30 .
   Web of Science ®Google Scholar
• Chen , S , Lee , C and Shrestha , K . 2003 . Futures hedge ratios: a review . Quarterly Review of Economics and Finance , 43 : 433 – 65 .
   Google Scholar
• Chou , WL , Dennis , KK and Lee , CF . 1996 . Hedging with the Nikkei index futures: the conventional model versus the error correction model . Quarterly Review of Economics and Finance , 36 : 495 – 505 .
   Web of Science ®Google Scholar
• Engle , RF and Watson , MW . 1987 . The Kalman Filter: applications to forecasting and rational-expectation models . Fifth World Conference . 1987 . Advances in Econometrics , Edited by: Bewley , TF . Vol. 1 , Cambridge : Cambridge University Press .
   Google Scholar
• Floros , C and Vougas , D . 2004 . Hedge ratios in Greek stock index futures market . Applied Financial Economics , 14 : 1125 – 36 .
   Google Scholar
• Frino , AT and McKenzie , MD . 2002 . The pricing of index futures spreads at contract expiration . The Journal of Futures Markets , 22 : 451 – 69 .
   Web of Science ®Google Scholar
• Frino , AT and West , A . 1999 . The lead-lag relationship between stock indices and stock index futures contracts: further Australian evidence . ABACUS , 35 : 333 – 41 .
   Google Scholar
• Frino , AT and West , A . 2000 . The lead-lag relation between equities and stock index futures markets around information releases . Journal of Futures Markets , 20 : 311 – 42 .
   Web of Science ®Google Scholar
• Ghosh , A . 1995 . The hedging effectiveness of ECU futures contracts: forecasting evidence from an error correction model . Financial Review , 30 : 567 – 81 .
   Google Scholar
• Ghosh , A and Clayton , R . 1996 . Hedging with international stock index futures: an intertemporal error correction model . Journal of Financial Research , XIX : 477 – 91 .
   Google Scholar
• Harvey , A . 1990 . Forecasting Time Series Models and the Kalman Filter , Cambridge : Cambridge University Press .
   Google Scholar
• Harvey , A . 1997a . Time Series Models, , 3rd edn , London : London School of Economics-Harvester Wheatsheaf .
   Google Scholar
• Harvey , A . 1997b . Trends, cycles and autoregressions . Economic Journal , 107 : 192 – 201 .
   Web of Science ®Google Scholar
• Hatemi-J , A . 2002 . Is the government's intertemporal constraint fulfilled in Sweden? An application of the Kalman Filter . Applied Economics Letters , 9 : 433 – 9 .
   Web of Science ®Google Scholar
• Holmes , P . 1995 . Ex ante hedge ratios and the hedging effectiveness of the FTSE-100 stock index futures contract . Applied Economics Letters , 2 : 56 – 9 .
   Web of Science ®Google Scholar
• Kroner , KF and Sultan , J . 1993 . Time varying distributions and dynamic hedging with foreign currency futures . Journal of Financial and Quantitative Analysis , 28 : 535 – 51 .
   Web of Science ®Google Scholar
• Lien , DD . 1996 . The effect of the cointegrating relationship on futures hedging: a note . Journal of Futures Markets , 16 : 773 – 80 .
   Web of Science ®Google Scholar
• Lien , D and Luo , X . 1993 . Estimating multi-period hedge ratios in cointegrated markets . Journal of Futures Markets , 13 : 909 – 20 .
   Web of Science ®Google Scholar
• Lien , D , Tse , YK and Tsui , AKC . 2002 . Evaluating the hedging performance of the constant-correlation GARCH model . Applied Financial Economics , 12 : 791 – 8 .
   Google Scholar
• Lim , K . 1996 . Portfolio hedging and basis risks . Applied Financial Economics , 6 : 543 – 9 .
   Google Scholar
• Lucas , RE . 1976 . Econometric policy evaluation: a critique . Carnegie-Rochester Series on Public Policy , 1 : 19 – 46 .
   Google Scholar
• Moosa , I . 2003 . The sensitivity of optimal hedge ratio to model specification . Finance Letters , 1 : 15 – 20 .
   Google Scholar
• Myers , RJ and Thompson , SR . 1989 . Generalised optimal hedge ratio estimation . American Journal of Agricultural Economics , 71 : 858 – 68 .
   Web of Science ®Google Scholar
• Park , TH and Switzer , LN . 1995 . Bivariate GARCH estimation of the optimal hedge ratios for stock index futures: a note . Journal of Futures Markets , 15 : 61 – 7 .
   Web of Science ®Google Scholar
• Perron , P . 1989 . The great crash, the oil price shock and the unit root hypothesis . Econometrica , 57 : 1361 – 401 .
   Web of Science ®Google Scholar
• Phillips , PCB . 1995 . Bayesian model selection and prediction with empirical applications . Journal of Econometrics , 69 : 289 – 331 .
   Web of Science ®Google Scholar
• Rossi , E and Zucca , C . 2002 . Hedging interest rate risk with multivariate GARCH . Applied Financial Economics , 12 : 241 – 51 .
   Google Scholar
• Sim , AB and Zurbruegg , R . 2001 . Dynamic hedging effectiveness in South Korean index futures and the impact of the Asian financial crisis . Asian-Pacific Financial Markets , 8 : 237 – 8 .
   Google Scholar