Type

Working Paper

Authors

Jim Hanly
John Cotter

Subjects

Business

Topics
g10 conditional value at risk lower partial moments hedging performance asymmetry risk econometric models value at risk g15 g12 hedging finance evaluation

Hedging effectiveness under conditions of asymmetry (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 hedgersusing 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 aresignificant 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 acrossdifferent measures of hedging effectiveness and estimation methods irrespective of thecharacteristics of the underlying distribution.
Collections Ireland -> University College Dublin -> School of Business
Ireland -> University College Dublin -> Centre for Financial Markets Working Papers
Ireland -> University College Dublin -> College of Business

Full list of authors on original publication

Jim Hanly, John Cotter

Experts in our system

1
Jim Hanly
University College Dublin
Total Publications: 16
 
2
John Cotter
University College Dublin
Total Publications: 93