Are Regression Approach Futures Hedge Ratios Stationary?

The Journal of Futures Markets, Vol 18, No. 7, 851-866 (1998)

Posted: 29 Aug 2017

See all articles by Robert Ferguson

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Date Written: August 22, 1998

Abstract

In contrast to some recent research, this article finds that regression approach futures hedge ratios are stationary. It shows that a previous study's failure to reject the random walk null hypothesis was due to its small sample size and the overlapping hedge ratio calculation approach's bias toward accepting the random walk hypothesis. The impact of overlap on the Dickey-Fuller full model intercept and slope estimates is demonstrated analytically and numerically. Finally, the article shows that out-of-sample hedging performance is not significantly improved by updating the hedge ratios.

Keywords: futures, hedge ratio

JEL Classification: G00, G11, G13, G19

Suggested Citation

Ferguson, Robert and Leistikow, Dean, Are Regression Approach Futures Hedge Ratios Stationary? (August 22, 1998). The Journal of Futures Markets, Vol 18, No. 7, 851-866 (1998). Available at SSRN: https://ssrn.com/abstract=3024142

Robert Ferguson (Contact Author)

AnswersToGo ( email )

6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
United States
7868974573 (Phone)

Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

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