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Suppose today is the end of 2015 December, an investor had 1,000,000 shares of Chow Sang Sang stock. She worries that the stock price may decline in the next month, and would like to hedge her stock position with 2-month Hang Seng Index futures or 2-month gold futures. The excel file has the end-of-month prices for HangSang index futures, Chow Sang Sang stock, and Gold futures. The attached PDF files contain the contract specifications of Hang Seng Index futures and Gold futures.

Assume (1) in the end of 2015, the 2-month future's prices on Hang Seng index and gold are same as spot prices, (2) change (or return) of futures price can be estimated by the change (or return) of spot prices, and (3) the exchange rate of HKD and USD is fixed at 7.76HKD=1USD. Please use all the data in excel to calculate.

a.) In the end of 2015 December, which futures contract, Hang Sang Index or Gold, would you recommend her to short to hedge the 1,000,000 shares of Chow Sang Sengstock? Why? (use return to compute)

b.) How many contracts does she need to short? (use return to compute)

Reference no: EM133070671

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