The Superiority of Time-Varying Hedge Ratios in Turkish Futures

This paper aims to compare the effectiveness of constant hedge ratio estimates (obtained through OLS and VECM methods) and time-varying hedge ratio estimates (obtained via M-GARCH method) for future contracts of ISE-30 index of TurkDEX. We use portfolio variance reduction as the measure of hedging effectiveness. We find that timevarying hedge ratios outperform the constant ratios for both in-sample and out-of-sample datasets and provide the minimum variance values.