A note on the superiority of the OLS hedge ratio
Suppose that spot and futures prices are generated from an error‐correction model. This note demonstrates that, although the OLS model is misspecified, it provides a hedge ratio that usually outperforms the hedge ratio derived from the correct error‐correction model. The opposite result is possible only when the postsample incurs a major structural change from the estimation sample. ©2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1121–1126, 2005
Year of publication: |
2005
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Authors: | Lien, Donald |
Published in: |
Journal of Futures Markets. - John Wiley & Sons, Ltd.. - Vol. 25.2005, 11, p. 1121-1126
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Publisher: |
John Wiley & Sons, Ltd. |
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