Hedging performance of volatility index futures: a partial cointegration approach

Using the Clegg–Krauss framework, this paper first examines a partial cointegration relationship between stock index futures and $$VIX$$ prices then constructs hedging strategy based upon relationship. This argues that are both affected by unobservable investor sentiment thus price series should be modelled Our empirical results validate prices. Based prices, we demonstrate proposed outperforms conventional strategies, e.g., $$OLS$$ , $$VAR$$ $$VECM$$ in terms of tail risk reduction expected utility, especially when length hedge horizon increases. In addition, cointegration-based becomes more dominant is near its historical high. Overall, our evidence effectiveness for different horizons market timing with provides valuable information practitioners management.