LIEN, DONALD; SHRESTHA, KESHAB - In: Annals of Financial Economics (AFE) 07 (2012) 02, pp. 1250008-1
In this paper, we analytically derive the adjustments needed for the conventional hedge ratio due to the presence of short-run and long-run dynamics. We also analytically show the performance impact of these dynamics. We apply the method discussed in the paper to eight different stock index...