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Negative Correlation between Stock and Futures Returns: An Unexploited Hedging Opportunity?

Basu, P.; Gavin, W.T.

Negative Correlation between Stock and Futures Returns: An Unexploited Hedging Opportunity? Thumbnail


Authors

W.T. Gavin



Abstract

The negative correlation between equity and commodity futures returns is widely perceived by investors as an unexploited hedging opportunity. A Lucas (1982) asset-pricing model is adapted to analyse the fundamentals driving equity and commodity futures returns. Using the model we argue that such a negative correlation could arise as an equilibrium relationship which reflects traders' perceptions about the shocks driving the fundamentals such as energy and consumables, and does not necessarily indicate any hedging opportunity.

Citation

Basu, P., & Gavin, W. (2016). Negative Correlation between Stock and Futures Returns: An Unexploited Hedging Opportunity?. Bulletin of Economic Research, 69(3), 209-215. https://doi.org/10.1111/boer.12090

Journal Article Type Article
Acceptance Date Apr 16, 2016
Online Publication Date Jun 14, 2016
Publication Date Jun 14, 2016
Deposit Date Apr 25, 2016
Publicly Available Date Jun 14, 2018
Journal Bulletin of Economic Research
Print ISSN 0307-3378
Electronic ISSN 1467-8586
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 69
Issue 3
Pages 209-215
DOI https://doi.org/10.1111/boer.12090
Public URL https://durham-repository.worktribe.com/output/1406191

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Copyright Statement
This is the accepted version of the following article: Basu, P. & Gavin, W.T. (2016). Negative Correlation between Stock and Futures Returns: An Unexploited Hedging Opportunity? Bulletin of Economic Research, which has been published in final form at https://doi.org/10.1111/boer.12090. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.





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