Comparing Hedging Effectiveness of Portfolios in the Greater Chinese Stock Exchanges: Evidence from a Modified Value-at-Risk Model

Chung-Chu Chuang, Yi-Hsien Wang and Tsai-Jung Yeh

Emerging Markets Finance and Trade, 2020, vol. 56, issue 3, 508-526

Abstract: The higher moments of hedged portfolio returns often influence the calculation of value-at-risk (VaR). To establish future short and long hedged portfolios, this study proposes a new modified VaR model, an expected utility maximization (EUM) subject to the modified VaR of higher moments (EUM-MVaR) of stock index futures in markets in greater China. EUM-MVaR has the greatest hedging effectiveness in determining hedged portfolios, while the minimum variance (MV) model had the least hedging effectiveness; the consideration of higher moments of a hedged portfolio return is more effective than non-consideration in determining the hedging effectiveness.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:56:y:2020:i:3:p:508-526

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DOI: 10.1080/1540496X.2018.1520088

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