'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 âoverlappingâ 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 pâs (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 pâs as estimators of the optimal, or first best, hedge ratios. I. EMPIRICAL TESâIS For the purpose of comparison we first present the standard
The Journal of Futures Markets – Wiley
Published: Sep 1, 1983
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