Hedging Mutual Fund Returns Using Futures Markets And ETFs
- Topics:
- Commercial Lending
- Tags:
- Benefits,
- Retirement Plans,
- Mutual Funds,
- Mutual Fund,
- Investment,
- Human Resources,
- Finance,
- ETF,
- Effectiveness,
- Venus Capital Management
- Source:
- University of Massachusetts
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Overview: The purpose of this study is to examine the effectiveness of hedging mutual fund returns using Index Futures Contracts and ETFs. Historical daily Lipper Large Value Growth mutual fund index returns, is used to represent a mutual fund portfolio. The mutual fund returns are hedged using index futures as well as exchange traded funds contracts on the S&P500, the NASDAQ, the Dow Jones, the Russell 1000 and the Russell 2000. To obtain the Optimal Hedge Ratios (OHR), a two-month period of the Lipper Index returns is regressed with the returns of above contracts. The OHR so obtained were used to create an ex-ante hedged Lipper portfolio for the following month. The standard deviation of hedged returns, unhedged returns were computed, and the hedging effectiveness was calculated using the formula suggested on this paper. Results show that S&P500, the NASDAQ, the Russell 1000 Growth as well as the Russell 2000 Growth futures and ETFs prove to be efficient hedging instruments and therefore an efficient risk management tool for these specific mutual funds.
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Format: PDF | Size: 275KB | Date: May 2003 | Pages: 12
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