Document Type

Article

Rights

This item is available under a Creative Commons License for non-commercial use only

Publication Details

The European Journal of Finance

Volume 18, Issue 2, 2012

10.1080/1351847X.2011.574977

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 GARCH 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.

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