Hedging effectiveness under conditions of asymmetry |
| |
Authors: | John Cotter Jim Hanly |
| |
Institution: | 1. Centre for Financial Markets, Smurfit School of Business , University College Dublin , Carysfort Avenue, Blackrock , County Dublin , Ireland john.cotter@ucd.ie;3. School of Accounting and Finance , Dublin Institute of Technology , Dublin 2 , Ireland |
| |
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 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. |
| |
Keywords: | hedging performance asymmetry lower partial moments value at risk conditional value at risk |
|
|