Type

Conference Proceedings

Authors

Jim Hanly
John Cotter

Subjects

Business

Topics
hedging performance hedging effectiveness garch models hedging finance evaluation risk econometric models performance metrics risk aversion lower partial moments

Hedging and risk aversion constraints (2005)

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.
Collections Ireland -> University College Dublin -> Business Research Collection
Ireland -> University College Dublin -> School of Business
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