Using a linear regression of changes in spot asset prices on changes in futures asset prices, the minimum-variance hedge ratio may be obtained
A) As the intercept coefficient in the regression.
B) As the slope coefficient in the regression.
C) As the $R ^ { 2 }$ of the regression.
D) As the square-root of the variance of the residuals from the regression.

Question

Quizplus · Accepted Answer

The minimum-variance hedge ratio is obtained as the slope coefficient in the regression of changes in spot asset prices on changes in futures asset prices. This slope, often denoted as beta ($\beta$), indicates how much the spot price changes in response to a change in the futures price, which is essential for determining the optimal hedge ratio.

Using a Linear Regression of Changes in Spot Asset Prices R2R ^ { 2 }R2

Using a Linear Regression of Changes in Spot Asset Prices $R ^ { 2 }$