Investigation on the effects of hedge horizon and estimation period on hedging effectiveness: An application on Turkish futures markets

Risk management in financial markets is possible with the effective use of hedging in futures markets. This study was carried out to examine the impact of different hedging horizons and different estimation periods on the hedge ratio and hedge efficiency of the porftolios. In the study, Rolling Regression (Moving Window Procedure) method was used to obtain the hedge ratio and measure the hedge effectiveness. Spot and futures market data for the period 2010-2021 were used in the analyses. Within the framework of ex-post hedging and ex-ante hedging, the findings regarding the hedge ratio and hedging effectiveness were evaluated separately, and the reliability of the findings was tested. It has been investigated how hedging performed with different hedging horizon and different estimation periods performs on portfolios. The results of the study are largely in line with the literature although they differ in terms of different hedging horizons, estimation periods and portfolios for ex-post and ex-ante hedging. In the study, it was found that the hedge ratio and hedge efficiency tended to increase for the majority of portfolios as the hedging horizon and estimation period increased, and it was concluded that the results obtained with the hypothesis tests carried out were statistically significant. In addition, the hedging performances were also investigated and it was determined that the increase in the hedging horizon and estimation period provide a higher reduction of the portfolio risk.