Minimum variance hedging when spot price changes are partially predictable |
| |
Authors: | Louis H Ederington Jesus M Salas |
| |
Institution: | 1. University of Oklahoma, Michael F. Price College of Business, Finance Division, Room 205 Adams Hall, Norman, OK 73019, United States;2. Lehigh University, College of Business and Economics, Perella Department of Finance, Rauch Business Center, 621 Taylor Street, Bethlehem, PA 18015, United States |
| |
Abstract: | In many markets, changes in the spot price are partially predictable. We show that when this is the case: (1) although unbiased, traditional regression estimates of the minimum variance hedge ratio are inefficient, (2) estimates of the riskiness of both hedged and unhedged positions are biased upward, and (3) estimates of the percentage risk reduction achievable through hedging are biased downward. For natural gas cross hedges, we find that both the inefficiency and bias are substantial. We further find that incorporating the expected change in the spot price, as measured by the futures-spot price spread at the beginning of the hedge, into the regression results in a substantial increase in efficiency and reduction in the bias. |
| |
Keywords: | G32 G13 |
本文献已被 ScienceDirect 等数据库收录! |
|