Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069235 | Finance Research Letters | 2017 | 5 Pages |
Abstract
This paper proposes a revised Glosten-Jagnnathan-Runkle (GJR) model for estimating hedge ratios. The model can take into account three important characteristics in the return behavior, i.e., fat-tailed distribution, leverage effect, and spot-futures spread. Hedge performance in terms of the White's (2000) reality check is conducted. Our results demonstrate that the generalized autoregressive conditional heteroskedasticity (GARCH) model that considers both fat-tailed distribution and asymmetric effects of the spread provides the best hedging effectiveness for longer horizons.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Kao Wei-Shun, Lin Chu-Hsiung, Changchien Chang-Cheng, Wu Chien-Hui,