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Hedging effectiveness under conditions of asymmetry

John Cotter () and Jim Hanly ()

The European Journal of Finance, 2012, vol. 18, issue 2, 135-147

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.

Date: 2012
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Related works:
Working Paper: Hedging Effectiveness under Conditions of Asymmetry (2011) Downloads
Working Paper: Hedging Effectiveness under Conditions of Asymmetry (2011) Downloads
Working Paper: Hedging Effectiveness under Conditions of Asymmetry (2007) Downloads
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DOI: 10.1080/1351847X.2011.574977

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