Use of Ibovespa Future Contracts for Pension Funds in Brazil: a sectorial approach

Abstract

The Pension Funds must be dealt with better management strategies. This work aimed to analyze the risk of  Pension Funds with and without Ibovespa futures contracts and to evaluate the gains obtained in the return/risk relation using the sectorial approach proposed. The levels of use of futures contracts that would allow optimum hedge were obtained using the co-integration models, and the risk, represented by the Value-at-risk (VaR) was obtained via conditional volatility models. The mean daily return of the hedge strategies drops, compared to the strategy without hedge. However, this drop is relatively small, compared to the drop of the risk offered by the use of the Ibovespa futures contracts. The results found indicated that a dynamic management, based on a sectorial monitoring of the assets that compose a particular investment portfolio improves its performance, considerably reducing the level of risk attained.