Lower partial moment hedge ratios

Babak Eftekhari

Applied Financial Economics, 1998, vol. 8, issue 6, 645-652

Abstract: Some investors may benefit from using measures of risk other than the variance in their investment decisions, specially if they are concerned with minimizing the downside risk of their portfolios. An accessible numerical method for calculating hedge ratios given any measure of risk is presented. The method is applied to the FTSE-100 index and the futures on FTSE-100, using a downside risk measure, namely the lower partial moment. The results show that lower partial moment hedge ratios are effective in reducing downside risk and increasing returns.

Date: 1998
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DOI: 10.1080/096031098332682

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