help on cross hedge optimal hedge variance ratio

You have not told us what software you used to get the results you 
present.  My first question is whether you are working with prices or 
log(prices)?  If the former, I suggest you consider the latter;  price 
changes tend to be much better behaved, more nearly normal, etc., on the 
log scale than in dollars, Euros, Rupias, or whatever.

	  Secondly, have you made a normal probability plot of the residuals, 
preferably using "studres" in library(MASS)?  (If you don't have 
Venables and Ripley 2002 Modern Applied Statistis with S, Springer, I 
recommend you get it and spend some time with it.  In addition to 
"studres", it has an excellent chapter devoted to an introductory 
discussion of time series analysis.)  Outliers suggest you may need to 
be working with some of the more sophisticated Rmetrics tools, but I'm 
not sufficiently familiar with those to say much more about that at the 
present time.

	  If I had outliers, I might just delete them initially.  However, I 
would definitely want to come back to them later, because the outliers 
could provide more information than other observations to predict, for 
example, a structural change in the market.  Modeling and reacting 
properly to such signals could make the difference between stellar 
performance and disaster in managing a hedge fund.

	  Thirdly, have you made acf and pacf of the residuals?  Also, have you 
computed the Box-Ljung statistic (function Box.test)?  If no, I suggest 
you do that as a next step.  If they indicate some kind of 
autocorrelation structure, I might then try to model and estimate that 
along with your regression model using function "arima".

	  If you still have questions (which I suspect), then feel free to ask 
another question.  However, before you do that, PLEASE do read the 
posting guide prior! "http://www.R-project.org/posting-guide.html". 
Many people find answers to their own questions in the process of 
working through the posting guide.  Questions posted following that 
process tend to be clearer, easier for others to understand and respond 
to.  On average, this tends to increase the speed, volume and utility of 
replies.

	  spencer graves

help on cross hedge optimal hedge variance ratio

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