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Empirical Analysis of Index Futures Hedge Ratios: Evidence from S&P 500, FTSE 100, Nikkei 225, and TAIEX

Yu-Fen Chen et al.

Review of Pacific Basin Financial Markets and Policies2025https://doi.org/10.1142/s021909152550002xarticle
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0.37

What the paper says

This study provides a comparative analysis of hedging determination for four international equity index futures, namely S&P 500, FTSE 100, Nikkei 225, and TAIEX futures contracts. Three alternative estimations are used to determine the hedge ratio for sizing hedge positions: a conventional OLS model, a conventional OLS model with an AR(2)-GARCH(1,1) error structure and an error correction model. Additionally, we evaluate the hedging effectiveness of these alternative models in different stock markets. First, three alternative methods of conducting optimal hedging in different markets are not identical. Moreover, comparisons of in-sample hedging performance reveal that the conventional OLS model outperforms two alternative models for these four stock markets. However, our out-of-sample hedging performance reveals that all hedge ratios which considering heteroscedastic error or cointegration relationship are superior to that of hedge ratio estimated by conventional OLS model. Overall, it is found that considering the existence of heteroscedastic error structure or cointegration relationship cannot be ignored when sizing hedge positions.

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https://doi.org/https://doi.org/10.1142/s021909152550002x

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@article{yu-fen2025,
  title        = {{Empirical Analysis of Index Futures Hedge Ratios: Evidence from S&P 500, FTSE 100, Nikkei 225, and TAIEX}},
  author       = {Yu-Fen Chen et al.},
  journal      = {Review of Pacific Basin Financial Markets and Policies},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1142/s021909152550002x},
}

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Empirical Analysis of Index Futures Hedge Ratios: Evidence from S&P 500, FTSE 100, Nikkei 225, and TAIEX

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.