The Use of Financial Futures as Hedging Vehicles

Jeong W. Lee
(Department of Finance, University of North Dakota, Grand Forks, North Dakota 58202, USA)

Abstract: In this paper, we investigate minimum risk hedges and hedging effectiveness measures for five financial instruments: S & P 500, Dow Jones Industrials, Nasdaq 100, Treasury Bonds, and 10 year Treasury Notes. Analysis indicates the relative desirability of positions in futures contracts to minimize the risk of spot exposure. Results also show hedging effectiveness increases with the investment horizon.

Key words: hedging effectiveness; financial futures and hedge ratios

JEL code: G13