Dynamic approach to futures pricing outperforms traditional methods in hedging.
The article explores how to effectively hedge the Australian all ordinaries share price futures contract. By using economic tools like structural vector autoregression modelling and the Johansen methodology, the researchers found that the VAR approach provides a better option for hedge ratio analysis compared to other methods. The study shows that using estimated hedge ratios from the VAR methodology outperforms simpler approaches and more complex models when tested in a mean-variance framework.