The interactions between the Mib30 stock market index and its future contract are examined. Using daily data for the 1994–2002 period, it is found that the cost-of-carry model holds as an equilibrium relationship between spot and futures prices. Deviations from equilibrium are corrected by movements in the spot market, but cross-market dynamics are also important in the short run. We model the time varying volatility of daily returns’ as an autoregressive conditional heteroscedastic process; this model used to estimate minimum-variance hedge ratios. In- and out-ofsample comparisons with static hedging show that, by carefully choosing the ARCH specification, a significant improvement in variance reduction can be achieved.

The Mib30 index and futures relationship: econometric analysis and implications for hedging / Pattarin, Francesco; Ferretti, Riccardo. - In: APPLIED FINANCIAL ECONOMICS. - ISSN 0960-3107. - STAMPA. - 14(2004), pp. 1281-1289. [10.1080/09603100412331313578]

The Mib30 index and futures relationship: econometric analysis and implications for hedging

PATTARIN, Francesco;FERRETTI, Riccardo
2004

Abstract

The interactions between the Mib30 stock market index and its future contract are examined. Using daily data for the 1994–2002 period, it is found that the cost-of-carry model holds as an equilibrium relationship between spot and futures prices. Deviations from equilibrium are corrected by movements in the spot market, but cross-market dynamics are also important in the short run. We model the time varying volatility of daily returns’ as an autoregressive conditional heteroscedastic process; this model used to estimate minimum-variance hedge ratios. In- and out-ofsample comparisons with static hedging show that, by carefully choosing the ARCH specification, a significant improvement in variance reduction can be achieved.
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The Mib30 index and futures relationship: econometric analysis and implications for hedging / Pattarin, Francesco; Ferretti, Riccardo. - In: APPLIED FINANCIAL ECONOMICS. - ISSN 0960-3107. - STAMPA. - 14(2004), pp. 1281-1289. [10.1080/09603100412331313578]
Pattarin, Francesco; Ferretti, Riccardo
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11380/306960
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