Hedging effectiveness under conditions of asymmetry

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Title: Hedging effectiveness under conditions of asymmetry
Authors: Cotter, John
Hanly, Jim
Permanent link: http://hdl.handle.net/10197/3468
Date: 31-Jan-2012
Abstract: We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics, for example, Value at Risk, to compare the hedging effectiveness of short and long hedgers. Comparisons are applied to a number of hedging strategies including OLS, and both symmetric and asymmetric GARCH models. We apply our analysis to a dataset consisting of S&P500 index cash and futures containing symmetric and asymmetric return distributions chosen ex-post. Our findings show that asymmetry reduces out-of-sample hedging performance and that significant differences occur in hedging performance between short and long hedgers.
Funding Details: Science Foundation Ireland
Type of material: Journal Article
Publisher: Taylor & Francis
Copyright (published version): 2011 Taylor & Francis
Keywords: Hedging performanceAsymmetryLower partial momentsValue at riskConditional value at risk
Subject LCSH: Hedging (Finance)--Evaluation
Risk--Econometric models
DOI: 10.1080/1351847X.2011.574977
Language: en
Status of Item: Peer reviewed
Appears in Collections:FMC² Research Collection
Business Research Collection

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