International hedge ratios for index futures market: A simultaneous equations approach

Cheng Few Lee, Fu Lai Lin, Mei Ling Chen

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


The main purpose of this paper is to investigate hedge ratios in terms of the international index futures markets. Instead of looking at hedging in a single market, we construct a simultaneous equations system to study the index hedging in the light of the cross-country linkage and interaction. The three-stage least squares (3SLS) estimating procedure is then applied to CAC40 and FTSE100 indices over the period 19902008. The empirical results indicate that the cross-country hedging strategy in both markets is feasible and the investors can bring down the holding position in own futures market. Moreover, the hedging effectiveness of cross-country hedging strategy performs better than the traditional single market hedging strategy in terms of the percentage reduction in variance.

Original languageEnglish (US)
Pages (from-to)203-213
Number of pages11
JournalReview of Pacific Basin Financial Markets and Policies
Issue number2
StatePublished - Jun 2010
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


  • Cross-country linkage
  • Hedge ratio
  • Simultaneous equation
  • Three-stage least squares


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