Hedging effectiveness under conditions of asymmetry
|Title:||Hedging effectiveness under conditions of asymmetry||Authors:||Cotter, John
|Permanent link:||http://hdl.handle.net/10197/1186||Date:||2007||Abstract:||We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies including OLS and both Symmetric and Asymmetric GARCH models. Our findings show that asymmetry reduces in-sample hedging performance and that there are significant differences in hedging performance between short and long hedgers. Thus, tail specific performance metrics should be applied in evaluating hedging effectiveness. We also find that the Ordinary Least Squares (OLS) model provides consistently good performance across different measures of hedging effectiveness and estimation methods irrespective of the characteristics of the underlying distribution.||Type of material:||Working Paper||Publisher:||University College Dublin. School of Business. Centre for Financial Markets||Series/Report no.:||Centre for Financial Markets working paper series; WP-07-08||Copyright (published version):||2007, Centre for Financial Markets||Keywords:||Hedging performance; Asymmetry; Lower partial moments; Value at Risk; Conditional Value at Risk||Subject LCSH:||Hedging (Finance)--Evaluation
|Other versions:||http://www.ucd.ie/bankingfinance/docs/wp/cotter%20hanly%20wp%2007%2008.pdf||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Centre for Financial Markets Working Papers|
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