Ex-Ante Hedging Effectiveness of UK Stock Index Futures Contracts: Evidence for the Ftse 100 and Ftse Mid 250

Posted: 19 Jun 2000

See all articles by Darren Butterworth

Darren Butterworth

Durham University - Department of Economics and Finance

Phil Holmes

Durham University

Abstract

Ex ante hedging effectiveness of the FTSE 100 and FTSE Mid 250 index futures contracts is examined for a range of portfolios, consisting of stock market indexes and professionally managed portfolios (investment trust companies). Previous studies which focused on ex post hedging performance using spot portfolios that mirror market indexes are shown to overstate the risk reduction potential of index futures. Although ex ante hedge ratios are found to be characterised by intertemporal instability, ex ante hedging performance of direct hedges and cross hedges approaches that of the ex post benchmark when hedge ratios are estimated using a sufficient window size.

Keywords: Ex ante Hedging, Hedge Ratio Instability, ITC

JEL Classification: G10

Suggested Citation

Butterworth, Darren and Holmes, Phil, Ex-Ante Hedging Effectiveness of UK Stock Index Futures Contracts: Evidence for the Ftse 100 and Ftse Mid 250. Available at SSRN: https://ssrn.com/abstract=231844

Darren Butterworth

Durham University - Department of Economics and Finance

Durham, DH1 3HY
United Kingdom

Phil Holmes (Contact Author)

Durham University ( email )

Dept. of Economics & Finance 23-26 Old Elvet
Durham DH1 3HY
United Kingdom
+44 191 374 5975 (Phone)
+44 191 374 7289 (Fax)

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