Methods of Partial Hedging

In this article we survey methods of dealing with the following problem: A financial agent is trying to hedge a claim C, without having enough initial capital to perform a perfect (super) replication. In particular, we describe results for minimizing the expected loss of hedging the claim C both in complete and incomplete continuous-time financial market models, and for maximizing the probability of perfect hedge in complete markets and markets with partial information. In these cases, the optimal strategy is in the form of a binary option on C, depending on the Radon-Nikodym derivative of the equivalent martingale measure which is optimal for a corresponding dual problem. We also present results on dynamic measures for the risk associated with the liability C, defined as the supremum over different scenarios of the minimal expected loss of hedging C. This revised version was published online in August 2006 with corrections to the Cover Date.     

Managerial Ownership and Corporate Hedging

Abstract:  Using information on 443 UK non-financial companies, this work provides evidence supporting the hypothesis that managerial risk aversion is an incentive to deviate from the optimal hedging position. Conflicts of interest between shareholders and managers are at the centre of the decision about the firm's risk profile but are not relevant as determinants of the decision to hedge. This is rather associated with factors enhancing the firm's expected value (underinvestment, scale economies, tax savings).     

Hedging effectiveness under conditions of asymmetry

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 generalised autoregressive conditional heteroskedastic 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.     

A Note on Partial Insurance and the Arrow-Pratt Measure of Risk Aversion

Pratt [1964] establishes that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for full insurance, but no comparable result has been established for partial insurance. Ross [1981] shows that a more risk-averse individual in the Arrow-Pratt sense may not be willing to pay more for a reduction in risk in the sense of mean-preserving contraction. We show that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for all empirically relevant forms of partial insurance because they induce a reduction in risk in the stronger sense of Bickel and Lemann [1979].JEL Classification No.: D81     

风险厌恶、失望厌恶和期货套期保值

本文考察失望厌恶对期货套期保值的影响。我们把一个不变的绝对风险厌恶（CARA）效用函数放进Gul（1991）的失望厌恶框架之内。它显示出，一个更厌恶失望的套期保值者会比一个厌恶失望程度较低的套期保值者选择一个更接近于最小方差套期保值的最优期货头寸。当套期保值者厌恶风险的程度较低时，失望厌恶的效应更强。对失望很小程度的厌恶会使一个接近于风险中性的套期保值者持有一个截然不同的头寸。此外，一个更厌恶风险或失望的套期保值者会有一个较低的参考点reference point。数字上的结果显示，厌恶失望的套期保值者的参考点往往会低于传统的厌恶损失的套期保值者的参考点。于是，厌恶失望的套期保值者的行动会更加保守，利用机会牟利的行为会少于传统的厌恶损失的套期保值者。     

我国商业银行贷款损失准备的效率分析

提取贷款损失准备金是商业银行应对信用风险的措施,无效的贷款损失准备对银行资本与盈利有一定的影响。以往的研究主要集中在银行有意愿操纵贷款损失准备方面,而对其贷款损失准备的决策效率很少涉及。贷款损失准备效率是指银行管理者对银行贷款损失准备决策的有效性,即实际设置的贷款损失准备与其有效边界的偏离程度。本文运用随机前沿模型研究了1998～2004年我国商业银行贷款损失准备的决策效率,实证结果发现,我国商业银行贷款损失准备决策效率具有一定的无效性,没有达到效率边界;股份制商业银行贷款损失准备的决策效率高于国有商业银行。     

Commodity futures hedging,risk aversion and the hedging horizon

This paper examines the impact of management preferences on optimal futures hedging strategy and associated performance. Applying an expected utility hedging objective, the optimal futures hedge ratio is determined for a range of preferences on risk aversion, hedging horizon and expected returns. Empirical results reveal substantial hedge ratio variation across distinct management preferences and are supportive of the hedging policies of real firms. Hedging performance is further shown to be strongly dependent on underlying preferences. In particular, hedgers with high risk aversion and short horizon reduce hedge portfolio risk but achieve inferior utility in comparison to those with low aversion.     

The Valuation of Deferred Taxation: Evidence from the UK Partial Provision Approach

The UK provides a virtually unique environment in which to examine the information content of the partial provision approach to deferred tax accounting. In addition this issue is of particular interest to UK accounting standard setters in the light of trends towards international accounting standard harmonisation. Taking the total amount of deferred taxation to be equal to the partial balance sheet provision plus the potential portion appearing in the notes, this study tests the relationship between these various deferred tax components and market value. It also examines the economic rationale for the potential portion. The study is based on 1,512 company/years from the period 1989–1991. It finds that, while the full amount of deferred taxation is not valued by the market as a liability, there is evidence of the partial balance sheet provision being so valued. There is also evidence that the potential portion is positively related to market value, consistent with its proxying for information about future growth. This result is supported by the positive relation between the potential portion and measures of future capital spending, indicative of an underlying economic rationale for this deferred taxation component. From a regulatory perspective, the study concludes that the main benefit of the partial provision approach is that the balance sheet amount constitutes a reasonably reliable measure of the portion likely to crystallise as a liability, information that would be lost were only the full amount to be disclosed.     

Foreign Exchange Risk,Hedging, and Tax-Motivated Outbound Income Shifting

Although outbound income shifting to low-tax jurisdictions provides tax savings, it is often accompanied by nontax costs. In this study, I examine whether foreign exchange (FX) risk constrains tax-motivated outbound income shifting by U.S. multinational corporations. My findings indicate that exposure to greater currency volatility is associated with less outbound income shifting, and this effect is stronger for firms with foreign affiliates using foreign functional currencies. I also investigate whether hedging facilitates outbound income shifting. Consistent with hedging lowering costs associated with exchange rate volatility, I find that U.S. firms that use more currency derivatives tend to shift more income to low-tax foreign jurisdictions. Overall, these findings suggest that FX risk is an important cost of outbound income shifting.     

The Traditional Hedging Model Revisited with a Nonobservable Convenience Yield

This article examines the hedging of constrained commodity positions with futures contracts. We extend the study of Adler and Detemple (1988a, 1988b) to include a partial information framework where the convenience yield is not observable. As a consequence, futures prices depend on investor's beliefs regarding the value of the convenience yield, and every component of the hedge is impacted by these beliefs. We achieve a decomposition of the demand that clarifies the impact on the optimal hedge of the beliefs, the spot price and the risk‐free rate as well as the hedging horizon.     

Loss aversion and the price of risk

This paper derives a simple theoretical relationship between the degree of loss aversion, the concavity/convexity of the value function, and the equilibrium market price of risk. We show that while the degree of loss aversion is key in determining the market price of risk, the convexity/concavity of the value function is much less important in this respect. The theoretical relationship obtained is tested empirically by using international data from 16 different countries during over 100 years, as documented by Dimson et al. [Triumph of the Optimists: 101 Years of Global Investment Returns, 2002 (Princeton University Press)]. The empirical data yield an estimate of λ=2.3 for the loss aversion index. This value is in striking agreement with estimates obtained in the very different methodology of laboratory experiments of individual decision-making.     

Managerial Stock Options and the Hedging Premium

Previous studies have found mixed evidence on whether hedging increases firm value. Some studies have shown that managerial incentives may influence firm hedging. In this paper we provide evidence that when hedging is based upon incentives from managers' options, firm value decreases.     

Dynamic Hedging Effectiveness in South Korean Index Futures and the Impact of the Asian Financial Crisis

This paper focuses on the impact of the 1997 Asian financial market crisis upon hedging effectiveness within the KOSPI 200 stock index and index futures markets. The paper utilizes the inter-temporal relationship between the two markets to examine the characteristics of several minimum variance hedge ratios. It also examines the performances of alternative hedging strategies for dynamic portfolio management in the presence of cointegrated time-varying risks. The results show a decline in the persistence of conditional volatility within market prices after the crisis. This decline leads to the relative performance of utilizing constant hedge ratios to increase, though not significantly so to guarantee a superior performance over more sophisticated time-varying hedge ratio strategies.     

贷款损失准备金与资本充足率监管——来自日本银行业的实证分析

在以资本充足率监管为核心的国际银行业监管框架内,贷款损失准备金是影响资本充足率监管有效性的重要因素。本文运用向量自回归模型实证考察了日本银行业贷款准备金政策对资本的影响,实证结果表明:(1)银行增加贷款准备金计提在短期内会对资本造成负面冲击,而长期内却有利于提高资本水平;(2)短期内贷款准备金对资本的负面冲击向长期内贷款准备金对稳定和提高资本水平均衡调整的速度很慢,意味着贷款准备金政策的缺陷严重削弱了日本银行业资本监管的有效性。本文从日本银行业贷款准备金政策的发展进一步分析了实证结果的原因,并且指出我国实施资本充足率监管在完善贷款准备金政策方面的建议。     

Hedging,Financing and Investment Decisions: A Simultaneous Equations Framework

We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.     

基于沪铜期货的套期保值比率与效率比较的实证分析

本文以沪铜期货的多头套期保值为研究对象,分别利用OLS模型、ECM模型和GARCH模型对一月期铜和三月期铜的套期保值比例及保值效果进行了分析,发现OLS模型对一月期铜的套期保值效果要优于其他模型的保值效果,而ECM模型和GARCH模型在三月期铜的套期保值方面显示的效果更好。这说明在一般情况下,具有动态特征的计量模型适合于较长的期货合约,其套期保值效果更好。     

Arbitrage, Risk Premium, and Cointegration Tests of the Efficiency of Futures Markets

This article provides a new perspective on the efficiency of futures markets in a cointegration framework. Under the conventional risk premium hypothesis, if futures and spot prices are non-stationary, they must be cointegrated if futures markets are efficient. Alternatively, the cost-of-carry model implies that there should be a cointegration relationship among spot prices, futures prices and interest rates assuming all the series contain a unit root. Market efficiency further implies specific parameter restrictions under these two models. Using data on the futures markets for gold, silver, palladium and platinum, this article first establishes that interest rates, spot and futures prices are unit root non-stationary. The evidence on cointegration is somewhat mixed: the gold futures market is consistent with the cost-of-carry model, and the silver futures market satisfies the risk premium hypothesis, but the evidence for the other two markets is inconclusive.     

银行业前瞻性贷款损失准备金计提方法的研究

在信贷市场信息不完全和历史成本会计法的条件下,银行前瞻性地计提贷款准备金具有必然性.本文从贷款定价的角度分析了银行计提贷款准备金的基本原理,基于对前瞻性的贷款准备金计提方法的理论依据、国际银行业的实施现状及所存在问题的考察,提出了基于马尔可夫链预测思想的前瞻性的贷款准备金的新思路,并分析了其运作机理及可行性.     

Foreign Currency Derivatives versus Foreign Currency Debt and the Hedging Premium

This paper compares the effect on firm value of different foreign currency (FC) financial hedging strategies identified by type of exposure (short‐ or long‐term) and type of instrument (forwards, options, swaps and foreign currency debt). We find that hedging instruments depend on the type of exposure. Short‐term instruments such as FC forwards and/or options are used to hedge short‐term exposure generated from export activity while FC debt and FC swaps into foreign currency (but not into domestic currency) are used to hedge long‐term exposure arising from assets located in foreign locations. Our results relating to the value effects of foreign currency hedging indicate that foreign currency derivatives use increases firm value but there is no hedging premium associated with foreign currency debt hedging, except when combined with foreign currency derivatives. Taken individually, FC swaps generate more value than short‐term derivatives.     

Liquidity Provision,Bank Capital,and the Macroeconomy

New bank equity must come from somewhere. In general equilibrium, raising bank capital requirements means either that banks produce less short‐term debt (as debt holders must become shareholders), or short‐term debt is not reduced and the banking system acquires nonbank equity (as the shareholders in nonbanks become shareholders in banks). The welfare effects involve a trade‐off because bank debt is special as it is used for transactions purposes, but more bank capital can reduce the chance of bank failure (producing welfare losses).