Saturday, 19 March 2011: 12:10
This study aims to investigate and provide further insight into the dynamics of higher moments in the estimation of optimal hedge ratios during the recent credit crisis period, by applying the Gram-Charlier expansion series. Furthermore, compare the performance of the proposed models with conventional hedge ratio methodologies such as: OLS, GARCH and univariate and multivariate GARCH models. The empirical application is performed on spot and futures data on the FTSE 100 and FTSE/ATHEX 20 indices by comparing the in- and out-of-sample hedging effectiveness. The selection of the FTSE/ATHEX 20 index was on the premise that the Greek equity market experienced a number of extreme movements during the credit crisis period, which would really put any model under a real stress.