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The effects of asymmetries on optimal hedge ratios

Record type: Article

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.

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Citation

Brooks, Chris, Henry, Ólan T. and Persand, Gita (2002) The effects of asymmetries on optimal hedge ratios Journal of Business, 75, (2), pp. 333-352.

More information

Published date: April 2002

Identifiers

Local EPrints ID: 35872
URI: http://eprints.soton.ac.uk/id/eprint/35872
ISSN: 0021-9398
PURE UUID: 7a3e1e88-844c-4c60-a928-aa7f139c4e60

Catalogue record

Date deposited: 23 May 2006
Last modified: 17 Jul 2017 15:46

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Contributors

Author: Chris Brooks
Author: Ólan T. Henry
Author: Gita Persand

University divisions


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