Abstract
M.Comm. (Financial Economics)
This study provides an assessment of the comparative effectiveness of four methods of
estimating the optimal hedge ratio in the South African equity and futures markets. This study
bases the effectiveness of hedging on volatility reduction and minimisation of the coefficient of
variation of hedged returns as well as the risk-aversion based on utility maximisation. The
empirical analysis shows that the static single equation method estimated by ordinary least
squares is the most effective over daily hedging periods. However, the vector error-correction
method and multivariate GARCH methods are most effective over weekly and monthly hedging
periods. Vector autoregression method is the least effective method over all hedging periods.