Abstract
We explore futures hedging based on the global minimum variance strategy. As evidenced by using eleven of the world’s major stock market indexes and their corresponding futures contracts, the results show that the global minimum variance hedge may deviate statistically from the Ederington (J Finance 43(1):157–170, 1979) minimum variance hedge. We also present a regression approach to testing the hedge ratios and futures positions when the noise terms follow a normal distribution. In the illustration examined, we show that the global minimum variance hedge provides a more economically significant information ratio yield than that under the minimum variance hedge.
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The author gratefully acknowledges a partial financial support from the National United University through project 107-NUUPRJ-11.
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Chiu, WY. The global minimum variance hedge. Rev Deriv Res 23, 121–144 (2020). https://doi.org/10.1007/s11147-019-09159-8
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DOI: https://doi.org/10.1007/s11147-019-09159-8