Explanation:
Since the manager is long equities, a short hedge is appropriate. He should sell the following number of S&P futures contracts:
(Book 3, Module 34.1, LO 34.e)
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Question 12
A portfolio manager runs a large $400,000,000 long equity portfolio. Relative to the S&P 500, the manager's portfolio has a beta of 1.07. Currently, S&P futures are trading at 6,000, and the futures multiplier is 250. The manager wishes to create a hedge for his portfolio for the next four months using S&P futures. How many futures contracts should the manager buy or sell to hedge this portfolio?
A
Long hedge; 428 contracts.
B
Short hedge; 453 contracts.
C
Long hedge; 267 contracts.
D
Short hedge; 285 contracts.
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