  This paper examines the volatility and covariance dynamics of cash and
futures contracts that underlie the Optimal Hedge Ratio (OHR) across different
hedging time horizons. We examine whether hedge ratios calculated over a short
term hedging horizon can be scaled and successfully applied to longer term
horizons. We also test the equivalence of scaled hedge ratios with those
calculated directly from lower frequency data and compare them in terms of
hedging effectiveness. Our findings show that the volatility and covariance
dynamics may differ considerably depending on the hedging horizon and this
gives rise to significant differences between short term and longer term
hedges. Despite this, scaling provides good hedging outcomes in terms of risk
reduction which are comparable to those based on direct estimation.
