Stability and the hedging performance of foreign currency futures

Stability and the hedging performance of foreign currency futures 'The theoretical justification for this methodology within a mean-varianceframework has been explored by Ederington (1979) among others. ~~ Theoharry Grammatikos is an Assistant Professor of Finance, Graduate School of Business Administration, New York University. Anthony SaLtnders i an Associate Professor o Finance, s f Gradwte School ofBusinessAdministration, New York University. The Josrnal of Futures Markets, Vol. 3, No. 3.295-305 (1983) 0 1983byIohnWiley&Solls,loc. CCC 02707314R3103029511N)Z.10 The first approach uses a moving or “overlapping” regressions procedure to gain some initial insights into the time variability of the hedge ratios. The second approach, following Gujarati (1978), examines whether significant shifts have taken place in regression p’s (hedge ratios) over various subperiods. A number of economic events that might have been expected, on a priori grounds, to have impacted on the foreign exchange markets and therefore hedge ratios also are examined explicitly. The third approach, following Theil(1971), uses a random coefficients model (RCM) to determine whether hedge ratios changed stochastically over time. The greater the variance of the time-dependent regression slope coefficients the less efficient are the OLS p’s as estimators of the optimal, or first best, hedge ratios. I. EMPIRICAL TES’IS For the purpose of comparison we first present the standard http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Stability and the hedging performance of foreign currency futures

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
Copyright © 1983 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
D.O.I.
10.1002/fut.3990030305
Publisher site
See Article on Publisher Site

Abstract

'The theoretical justification for this methodology within a mean-varianceframework has been explored by Ederington (1979) among others. ~~ Theoharry Grammatikos is an Assistant Professor of Finance, Graduate School of Business Administration, New York University. Anthony SaLtnders i an Associate Professor o Finance, s f Gradwte School ofBusinessAdministration, New York University. The Josrnal of Futures Markets, Vol. 3, No. 3.295-305 (1983) 0 1983byIohnWiley&Solls,loc. CCC 02707314R3103029511N)Z.10 The first approach uses a moving or “overlapping” regressions procedure to gain some initial insights into the time variability of the hedge ratios. The second approach, following Gujarati (1978), examines whether significant shifts have taken place in regression p’s (hedge ratios) over various subperiods. A number of economic events that might have been expected, on a priori grounds, to have impacted on the foreign exchange markets and therefore hedge ratios also are examined explicitly. The third approach, following Theil(1971), uses a random coefficients model (RCM) to determine whether hedge ratios changed stochastically over time. The greater the variance of the time-dependent regression slope coefficients the less efficient are the OLS p’s as estimators of the optimal, or first best, hedge ratios. I. EMPIRICAL TES’IS For the purpose of comparison we first present the standard

Journal

The Journal of Futures MarketsWiley

Published: Sep 1, 1983

References

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