On the Effectiveness of Stock Index Futures for Tail Risk Protection
This paper examines the effectiveness of using stock index futures contracts as substitutes for fixed-income securities in implementing expected shortfall targeting strategy. We find that the futures-based implementation outperforms its index-and-bill counterpart both in terms of downside protectio...
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| Format: | Article |
| Language: | English |
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EconJournals
2022-05-01
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| Series: | International Journal of Economics and Financial Issues |
| Subjects: | |
| Online Access: | https://econjournals.com/index.php/ijefi/article/view/13011 |
| _version_ | 1797908885451833344 |
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| author | Hamadi Zourai |
| author_facet | Hamadi Zourai |
| author_sort | Hamadi Zourai |
| collection | DOAJ |
| description |
This paper examines the effectiveness of using stock index futures contracts as substitutes for fixed-income securities in implementing expected shortfall targeting strategy. We find that the futures-based implementation outperforms its index-and-bill counterpart both in terms of downside protection and risk-adjusted performance at daily rebalancing frequency. This outperformance is driven not only by the transaction cost advantage, but also by the replication imperfections due to futures mispricing providing over the long term a better participation in upward market movements. When less frequent rebalancing intervals are used, the futures-based implementation becomes less effective at protecting the downside risk but still capture better the upside potential of the index.
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| first_indexed | 2024-04-10T10:59:53Z |
| format | Article |
| id | doaj.art-6221d1c282354dec8b2b82a44322498a |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T10:59:53Z |
| publishDate | 2022-05-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-6221d1c282354dec8b2b82a44322498a2023-02-15T16:19:45ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382022-05-0112310.32479/ijefi.13011On the Effectiveness of Stock Index Futures for Tail Risk ProtectionHamadi Zourai0Department of Accounting and Finance, High Institute of Management, Gabes, Tunisia. This paper examines the effectiveness of using stock index futures contracts as substitutes for fixed-income securities in implementing expected shortfall targeting strategy. We find that the futures-based implementation outperforms its index-and-bill counterpart both in terms of downside protection and risk-adjusted performance at daily rebalancing frequency. This outperformance is driven not only by the transaction cost advantage, but also by the replication imperfections due to futures mispricing providing over the long term a better participation in upward market movements. When less frequent rebalancing intervals are used, the futures-based implementation becomes less effective at protecting the downside risk but still capture better the upside potential of the index. https://econjournals.com/index.php/ijefi/article/view/13011Stock Index FuturesTail Risk ProtectionTarget Risk StrategiesValue-at-RiskExpected ShortfallExtreme Value Theory |
| spellingShingle | Hamadi Zourai On the Effectiveness of Stock Index Futures for Tail Risk Protection International Journal of Economics and Financial Issues Stock Index Futures Tail Risk Protection Target Risk Strategies Value-at-Risk Expected Shortfall Extreme Value Theory |
| title | On the Effectiveness of Stock Index Futures for Tail Risk Protection |
| title_full | On the Effectiveness of Stock Index Futures for Tail Risk Protection |
| title_fullStr | On the Effectiveness of Stock Index Futures for Tail Risk Protection |
| title_full_unstemmed | On the Effectiveness of Stock Index Futures for Tail Risk Protection |
| title_short | On the Effectiveness of Stock Index Futures for Tail Risk Protection |
| title_sort | on the effectiveness of stock index futures for tail risk protection |
| topic | Stock Index Futures Tail Risk Protection Target Risk Strategies Value-at-Risk Expected Shortfall Extreme Value Theory |
| url | https://econjournals.com/index.php/ijefi/article/view/13011 |
| work_keys_str_mv | AT hamadizourai ontheeffectivenessofstockindexfuturesfortailriskprotection |