 Correlation asymmetry and implication on hedgingAbdelwahed Trabelsi and Asma Ennabli International Journal of Financial Markets and Derivatives, 2017, vol. 6, issue 1, 30-56 Abstract: The paper studies the correlation asymmetry between currency spot and futures returns and its implication on hedging effectiveness using alternative multivariate GARCH models and different hedging strategies. For this purpose, daily data of EUR spot and futures returns are used to present a direct hedging strategy. A cross hedging strategy is also proposed using TND spot and EUR futures returns. Dynamic hedging is implemented using five multivariate GARCH models. The diagonal VECH and BEKK models are chosen among the covariance models. The CC-GARCH, DCC and GDCC represent the correlation models. The empirical results show that correlation between EUR spot and futures returns as well as between TND spot and EUR futures returns exhibit asymmetric behaviour. Moreover, the asymmetric diagonal VECH gives the best performance in terms of portfolio risk reduction in both strategies showing that covariance models are better than correlation models in modelling correlation asymmetry. Keywords: correlation; multivariate GARCH; asymmetry; derivatives; currency spot and futures returns; hedging effectiveness; hedging strategies; futures hedging; cross hedging. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijfmkd:v:6:y:2017:i:1:p:30-56 Access Statistics for this article More articles in International Journal of Financial Markets and Derivatives from Inderscience Enterprises Ltd |
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