✦ LIBER ✦

The hedging performance of ECU futures contracts

✍ Scribed by Anthony Saunders; Stanley Sienkiewicz

Publisher: John Wiley and Sons
Year: 1988
Tongue: English
Weight: 844 KB
Volume: 8
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.3990080307

No coin nor oath required. For personal study only.

✦ Synopsis

his paper analyzes the hedging performance of the newly created ECU T futures market as a hedging tool for both the ECU and its constituent currencies. While we find that the ECU futures market provides an effective own-and cross-hedge, its relative lack of success appears to be a puzzle until one considers an alternative hedging strategy. Specifically, this article shows that a strategy based upon a portfolio consisting of pound and mark futures closely replicates the hedging effectiveness of ECU futures contracts. Therefore, it appears that many holders of ECU denominated cash positions and/or other European currencies, such as banks, are aware of this alternative strategy and may be reluctant to use the new (less liquid) market.

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