Series 3: 3.3.2. Basis Risk

Taken from our Series 3 Online Guide

3.3.2. Basis Risk

Since single stock futures contracts are limited to certain high-quality stocks trading on specific exchanges, hedgers who own other less capitalized stocks must cross hedge if they want to use the futures market. Like stock index futures, basis risk for single stock futures is minimized by finding the futures contract whose underlying asset has a beta coefficient c

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