Hedging performance and the heterogeneity among market participants (original) (raw)
2019, Studies in Economics and Finance
Purpose This paper aims to apply the heterogeneous autoregressive model of realized volatility (HAR-RV) model to minimum-variance hedge ratio estimation and compares the hedging performance of presenting a model with that of a conventional rolling ordinary-least-square (OLS) hedging model. Moreover, this paper empirically analyzes the relationship between hedging performance and the heterogeneity of investors with different trading frequency in forming the expectation for the spot volatility, futures volatility and the covariance in the market. Design/methodology/approach Use HAR-RV to form expectations of participants of spots and futures market for the next period volatility based on two parts. One is the current observable realized volatility at the same time scale. The other is the expectation for the next longer time scale horizon volatility. Compare hedging performance with rolling OLS model and HAR-RV model. Present a three-times-scale-length (daily, weekly and monthly) HAR-R...
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