The authors thank Bob Webb (the editor), an anonymous referee, and the participants of the 23rd Australasian Finance & Banking Conference, December 15–17, 2010, and the 2011 International Conference of Taiwan Finance Association, May 27–28, 2011, for the helpful comments and suggestions. In particular, the authors would like to thank the National Science Council in Taiwan for financial support (NSC99-2410-H-260-028).
Incremental Value of a Futures Hedge Using Realized Ranges
Version of Record online: 21 MAR 2013
© 2013 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 34, Issue 7, pages 676–689, July 2014
How to Cite
Sheu, H.-J. and Lai, Y.-S. (2014), Incremental Value of a Futures Hedge Using Realized Ranges. J. Fut. Mark., 34: 676–689. doi: 10.1002/fut.21614
- Issue online: 2 JUN 2014
- Version of Record online: 21 MAR 2013
- Manuscript Accepted: 1 FEB 2013
- Manuscript Received: 17 SEP 2011
This study investigates the information content of realized ranges for futures hedging. Hedge ratio estimation using generalized autoregressive conditional heteroscedasticity (GARCH) models augmented with intraday price range is proposed. Empirical investigations using the S&P 500 equity index data show that the in-sample fitting of spot–futures distribution is improved by the information recovered from intraday price ranges. Furthermore, the out-of-sample forecasting results show that both the statistical and economic hedging effectiveness increase with the inclusion of intraday price ranges along with intraday and daily price returns. Results indicate that informative realized ranges are valuable for futures hedging. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:676–689, 2014