Complex econometric models fail to improve futures hedging efficiency, study finds.
Complex econometric models may not always be more effective than simple models for futures hedging. A study on China's copper futures market found that dynamic models like RCMRS and B-GARCH did not improve hedging efficiency compared to static models. In fact, static models outperformed dynamic models in out-of-sample comparisons. The risk of complex models includes introducing more noise and having greater estimation risk.