Question
A hedge fund holds a long position in ABC Corp. The fund uses S&P 500 Index futures to eliminate the systematic risk of its position
A hedge fund holds a long position in ABC Corp. The fund uses S&P 500 Index futures to eliminate the systematic risk of its position in ABC. How would an increase in ABC's non-systematic risk affect the hedging effectiveness of the fund's hedged position in the stock? Assume that ABC's systematic risk is not affected by an increase in its non-systematic risk.
It would decrease hedging effectiveness.
It would increase hedging effectiveness.
It would have no effect on hedging effectiveness.
Need more information. It depends on the beta.
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American Public School Finance
Authors: William A. Owings, Leslie S. Kaplan
3rd Edition
113849996X, 978-1138499966
