Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-25T07:33:38.207Z Has data issue: false hasContentIssue false
  • English
  • Français

A Risk-Return Measure of Hedging Effectiveness

Published online by Cambridge University Press:  06 April 2009

Charles T. Howard  and
Louis J. D'Antonio
Get access Rights & Permissions [Opens in a new window]

Extract

With the formation of a formal market for the trading of financial futures in October 1975, a renewed interest in the futures contract as an investment vehicle has emerged. The traditional approach was to view investing in futures as a way of off setting potential price risk associated with a given spot position. While these descriptive scenarios (see [3], [6], [10], [12], [13], [14], and [19]) adequately illustrate the traditional hedging strategy, their simplifying assumptions introduce a lack of realism into the investment process. The implication drawn from many of these articles is that, if one is interested in risk reduction, one should simply take the opposite position in the appropriate number of futures contracts to totally offset one's existing spot position.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 1 , March 1984 , pp. 101 - 112
Copyright
Copyright © School of Business Administration, University of Washington 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Anderson, R., and Danthine, J.. “Hedging and Joint Production.” Journal of Finance, Vol. 35 (05 1980), pp. 487–498.CrossRefGoogle Scholar
[2]Anderson, R., and Danthine, J.. “Cross Hedging.” Journal of Political Economy, Vol. 89 (12 1981), pp. 1182–1196.CrossRefGoogle Scholar
[3]Bacon, P. W., and Williams, R.. “Interest Rate Futures: New Tool for the Financial Manager.” Financial Management, Vol. 5 (Spring 1976), pp. 32–38.Google Scholar
[4]Black, F. “The Pricing of Commodity Contracts.” Journal of Financial Economics, Vol. 3 (01/03 1976), pp. 167–178.CrossRefGoogle Scholar
[5]Dale, Charles. “The Hedging Effectiveness of Currency Futures Markets.” The Journal of Futures Markets, Vol. 1 (Spring 1981), pp. 77–88.CrossRefGoogle Scholar
[6]Duncan, Wallace H. “Treasury Bill Futures… Opportunities and Pitfalls.” Review, Federal Reserve Bank of Dallas (07 1977), pp. 1–5.Google Scholar
[7]Ederington, L. “The Hedging Performance of the New Futures Market.” Journal of Finance, Vol. 34 (03 1979), pp. 157–170.Google Scholar
[8]Elton, E.; Gruber, M.; and Padberg, M.. “Simple Criteria For Portfolio Selection.” Journal of Finance, Vol. 31 (12 1976), pp. 1341–1357.Google Scholar
[9]Franckle, C. “The Hedging Performance of the New Futures Markets: Comment.” Journal of Finance, Vol. 35 (12 1980), pp. 1273–1279.Google Scholar
[10]Hedging Interest Rate Risk. 1st Revised Edition, The Chicago Board of Trade (09 1977).Google Scholar
[11]Johnson, L. “The Theory of Hedging and Speculation in Commodity Futures.” Review of Economic Studies, Vol. 27 (03 1960), pp. 139–151.Google Scholar
[12]Jones, F. “The Integration of the Cash and Futures Markets for Treasury Securities.” Journal of Futures Markets, Vol. 1 (Spring 1981), pp. 33–58.Google Scholar
[13]Opportunities in Interest Rates: Treasury Bill Futures. Chicago Mercantile Exchange (11 1977).Google Scholar
[14]Schweser, C; Cole, J.; and D'Antonio, L.. “Hedging Opportunities in Bank Risk Management Programs.” Journal of Commercial Bank Lending, Vol. 62 (01 1980), pp. 29–41.Google Scholar
[15]Stein, J. “The Simultaneous Determination of Spot and Futures Prices.” American Economic Review, Vol. 51 (12 1961), pp. 1012–1025.Google Scholar
[16]Stein, J.. “Spot, Forward and Futures.” Research in Finance, Vol. 1. Greenwich, CT: JAI Press (1979).Google Scholar
[17]Working, H. “Futures Trading and Hedging.” American Economic Review, Vol. 48 (06 1953), pp. 314–343.Google Scholar
[18]Working, H.. “Hedging Reconsidered.” Journal of Farm Economics, Vol. 35 (1953), pp. 544–561.Google Scholar
[19]Yardine, Edward. “Hedged Rides in the T-Bill Futures Market.” Commodities, Vol. 7 (08 1978), pp. 26–27.Google Scholar