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FACTORS AFFECTING T‐BOND HEDGE RATIO INSTABILITY
Author(s) -
Daigler Robert T.,
Smyser Michael W.
Publication year - 1987
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1987.tb01171.x
Subject(s) - citation , bond , library science , economics , computer science , finance
Unstable hedge ratios canadv erselyaffect the m easure of hedgingeffect iveness inthe regre ssionapp roach tom inimize risk. T his paper examines therelativ e importance of the correlation coefficient versus thestan darddev iationratio as thecau se of unstablehe dgeratios usingT-b ond futures. T hepap er concludes that thestan darddev iationratio is significantly more important thanthe corre lationcoe fficient in determining changes inthe he dgeratio for theBe llwether series, whileboth the standard deviati on ratio and the correlation coeffici ent are important for t he two-year T-note series . These res ults have implications for forecasting and analyzing hedge ratios when the hedge ratios are unstable over time. 3 FACTORS AFFECTING T-BOND HEDGE RATIO I NSTABILITY