Multi-period hedge ratios for a multi-asset portfolio when accounting for returns comovement

Viviana Fernandez

No 242, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: This article presents a model to select the optimal hedge ratios of a portfolio comprised of an arbitrary number of commodities. In particular, returns dependency and heterogeneous investment horizons are accounted for by copulas and wavelets, respectively. We analyze a portfolio of London Metal Exchange metals for the period July 1993-December 2005, and conclude that neglecting cross correlations leads to biased estimates of the optimal hedge ratios and the degree of hedge effectiveness. Furthermore, when compared with a multivariate-GARCH specification, our methodology yields higher hedge effectiveness for the raw returns and their short-term components.

Date: 2007
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Citations: View citations in EconPapers (9)

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Journal Article: Multi‐period hedge ratios for a multi‐asset portfolio when accounting for returns co‐movement (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:242

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