The superiority of time-varying hedge ratios in Turkish futures market

This paper aims to compare the effectiveness of constant hedge ratio estimates (obtained through OLS and VECM methods) and time-varying hedge ratio estimates (obtained via M-GARCH method) for future contracts of ISE-30 index of TurkDEX. We use portfolio variance reduction as the measure of hedging effectiveness. We find that timevarying hedge ratios outperform the constant ratios for both in-sample and out-of-sample datasets and provide the minimum variance values. -- Futures Pricing ; Hedging ; M-GARCH ; Hedging effectiveness