PT - JOURNAL ARTICLE AU - Carol Alexander AU - Andreza Barbosa TI - Effectiveness of Minimum-Variance Hedging AID - 10.3905/jpm.2007.674793 DP - 2007 Jan 31 TA - The Journal of Portfolio Management PG - 46--59 VI - 33 IP - 2 4099 - https://pm-research.com/content/33/2/46.short 4100 - https://pm-research.com/content/33/2/46.full AB - Advanced electronic trading platforms and index exchange-traded funds (ETFs) have an impact on the minimum-variance hedging of stock indexes with futures. Minimum-variance hedging may provide better out-of-sample hedging performance than a naiĆ¼ve futures hedge, but only in markets without active trading of ETFs or advanced electronic communications networks. There is no evidence now to suggest that complex econometric models that include, e.g., time-varying conditional covariances and error correction can improve on the simple ordinary least squares hedge ratio. In markets with actively traded index ETFs and well-established electronic trading, no significant efficiency gains are apparent from any minimum-variance hedge.TOPICS: Mutual funds/passive investing/indexing, exchange-traded funds and applications, statistical methods