21-4

Alex Andrew, who manages a \$95 million large-capitalization U.S. equity portfolio, currently forecasts that equity markets will decline soon. Andrew prefers to avoid the transaction costs of making sales but wants to hedge $14 million of the portfolio's current value using S\&P 500 futures. Because Andrew realizes that his portfolio will not track the S\&P 500 Index exactly, he performs a regression analysis on his actual portfolio returns versus the S&P futures returns over the past year. The regression analysis indicates a risk-minimizing beta of 0.74 with an R2 of 0.92. Futures Contract Data: S\&P 500 futures price 1,000 S\&P 500 index 999 S\&P 500 index multiplier 260 Calculate the number of futures contracts required to hedge $14 million of Andrew's portfolio, using the data shown. In your answer, indicate whether the hedge is long (+) or short(-)