Sudden changes in variance and time varying hedge ratios

Aragó, Vicent; Salvador, Enrique

doi:10.1016/j.ejor.2011.05.055

Cited by 19 publications

(10 citation statements)

References 28 publications

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“…However, existing studies hardly use HAR‐type models to predict the volatility of base nonferrous metals (including copper futures). Additionally, some studies reveal that there are structural breaks in the volatility of financial asset returns (e.g., Aragó & Salvador, ; Wang et al, ), but existing studies do not take this into account when applying HAR‐type models to analyze volatility in the financial markets. Thus, we examine whether there are structural breaks in the volatility of copper futures returns.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Compared to the existing studies on base nonferrous metals markets and volatility prediction, our study mainly includes the following contributions. First, some studies find that there are structural breaks in the volatility of returns of financial assets (e.g., Aragó & Salvador, ; Wang, Bauwens, & Hsiao, ; Wen et al, ). However, existing research hardly focuses on structural breaks in volatility of returns in the base nonferrous metals markets.…”

Section: Introductionmentioning

confidence: 99%

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Structural breaks and volatility forecasting in the copper futures market

Gong

Lin

2017

Journal of Futures Markets

141

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This paper examines whether structural breaks contain incremental information for forecasting the volatility of copper futures. Considering structural breaks in volatility, we develop four heterogeneous autoregressive (HAR) models based on classical or latest HAR‐type models. Subsequently, we apply these models to forecast volatility in the copper futures market. The empirical results reveal that our models exhibit better in‐sample and out‐of‐sample performances than classical or latest HAR‐type models. This suggests that structural breaks contain incremental prediction information for the volatility of copper futures. More importantly, we argue that considering structural breaks can improve the performances of most of existing HAR‐type models. Highlights There are many structural break points in return volatility of the copper futures. We propose 12 new heterogeneous autoregressive models. Our models outperform the existing heterogeneous autoregressive models. Structural breaks contain additional ex ante information for volatility forecasting. The ex ante information is obvious in forecasting mid‐ and long‐term volatilities.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Structural breaks and volatility forecasting in the copper futures market

Gong

Lin

2017

Journal of Futures Markets

141

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“…According to several studies, the accommodation of asymmetric effects of volatility in the multivariate model is an important element in terms of serving as an appropriate specification of conditional variance–covariance matrixes and in terms of implications for asset allocation (Goeij & Marquering, ). However, it is important for modelling asset prices (Bekaert & Wu, ), for studying links between stock markets (Soriano & Climent, ; Li & Majerowska, ; Dajcman et al, ; Lee & Jeong, ) and for operations hedging (Aragó & Salvador, ).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Do Short‐ and Long‐Term Environmental Investments Follow the Same Path?

Gabriel

Pazos

2017

Corp Soc Responsibility Env

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The degree of connection and integration between stock market indices is crucial to identifying the potential benefits associated with international diversification. However, there have been no findings on relationships between sustainability indices. The present study analyses the existence of equilibrium between short-and long-term environmentally sustainable investments through Johansen cointegration tests and based on a model of asymmetric multivariate conditional heteroscedasticity. We selected indices for five segments of environmental investment (alternative energy, clean technology, green building, sustainable water, and pollution prevention) and applied a time period of roughly nine years. The obtained results show that over the long term, the indices' behaviour is autonomous, creating opportunities to diversify investment. Over the short term, environmental segments exhibit similar behaviour, approaching behaviours described by conventional indices.

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“…Yang and Allen [20] and Floros and Vougas [21] examined the hedging effectiveness of multivariate GARCH hedge ratios in Australian and Greek stock index futures market, respectively. Pok et al [22] and Aragó and Salvador [23] used asymmetric GARCH models to investigate the performance of dynamic hedging strategy.…”

Section: Introductionmentioning

confidence: 99%

Hedging Long-Term Exposures of a Well-Diversified Portfolio with Short-Term Stock Index Futures Contracts

Liu

Zhang

Chen

et al. 2014

Mathematical Problems in Engineering

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It is difficult for passive portfolio strategy to manage the long-term exposure of a well-diversified portfolio because stock index futures contracts have a finite life limited by their maturity. In this paper, we investigate the problem of the rollover hedge strategy for the long-term exposure of a well-diversified portfolio. First, we consider the rollover hedge strategy for the well-diversified portfolio when the portfolio is not adjusted during the period. In order to obtain the optimal solution of the proposed model, the auxiliary models are constructed using the equivalent transformation technique. Moreover, dynamic programming is employed to derive the optimal positions of stock index futures contracts for the long-term exposure of the well-diversified portfolio. In addition, we extend the result to the case of the rollover hedge strategy with transaction costs and derive the optimal number of stock index futures contracts.

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Sudden changes in variance and time varying hedge ratios

Cited by 19 publications

References 28 publications

Structural breaks and volatility forecasting in the copper futures market

Structural breaks and volatility forecasting in the copper futures market

Do Short‐ and Long‐Term Environmental Investments Follow the Same Path?

Hedging Long-Term Exposures of a Well-Diversified Portfolio with Short-Term Stock Index Futures Contracts

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