The effects of asymmetries on optimal hedge ratios
Brooks, Chris, Henry, Ólan T. and Persand, Gita (2002) The effects of asymmetries on optimal hedge ratios. Journal of Business, 75, (2), 333-352.
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There is widespread evidence that the volatility of stock returns displays an asymmetric response to good and bad news. This article considers the impact of asymmetry on time-varying hedges for financial futures. An asymmetric model that allows forecasts of cash and futures return volatility to respond differently to positive and negative return innovations gives superior in-sample hedging performance. However, the simpler symmetric model is not inferior in a hold-out sample. A method for evaluating the models in a modern risk-management framework is presented, highlighting the importance of allowing optimal hedge ratios to be both time-varying and asymmetric.
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||University Structure - Pre August 2011 > School of Management
|Date Deposited:||23 May 2006|
|Last Modified:||02 Mar 2012 13:07|
|Contributors:||Brooks, Chris (Author)
Henry, Ólan T. (Author)
Persand, Gita (Author)
|RDF:||RDF+N-Triples, RDF+N3, RDF+XML, Browse.|
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