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The impact of jumps and thin trading on realized hedge ratios?

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Dungey, M and Henry, O and Hvozdyk, L (2013) The impact of jumps and thin trading on realized hedge ratios? Discussion Paper. University of Tasmania. (Unpublished)

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Abstract

The use of intradaily data to produce daily variance measures has resulted in increased forecast accuracy and better hedging for many markets. However, this paper shows that improved hedging ratios can depend on the behavior of price disruptions in the assets. When spot and future prices for the same asset do not jump simultaneously inferior hedging outcomes can be observed. This problem dominates potential bias from thin trading. Using US Treasury data we demonstrate how the extent of non-synchronized jumping leads to the �nding that optimal hedging ratios are not improved with intradaily data in this market.

Item Type: Report (Discussion Paper)
Keywords: repec, US Treasury bonds; Futures; Realized hedge ratios; Jumps; Thin trading
Publisher: University of Tasmania
Additional Information:

Discussion Paper 2013-03 - Copyright 2013 University of Tasmania

Date Deposited: 05 Apr 2013 00:55
Last Modified: 18 Nov 2014 04:50
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