Advances and Applications in Statistics
Volume 38, Issue 2, Pages 113 - 128
(February 2014)
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THE IMPACT OF INVESTOR’S VIEW ON HEDGING EFFECTIVENESS
Wan-Yi Chiu
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Abstract: Investors vary in how they locate a portfolio with a futures position, but the optimal hedging ratio typically relies on the equilibrium parameters. In contrast to optimal risk-return hedging, we employ two popular approaches - the Bayesian framework and a conditional regression - to examine the impact of investor’s views on hedging effectiveness. In terms of hedging effectiveness, this study suggests a feasible measure to determine whether the Bayesian learning compares favorably with the conditional regression updating. |
Keywords and phrases: hedging effectiveness, Black-Litterman model, conditional distribution, Sharpe-ratio. |
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