The Cross‐Currency Hedging Performance of Implied Versus Statistical Forecasting Models | Zendy

Brooks Chris | Zendy; Chong James | Zendy

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The Cross‐Currency Hedging Performance of Implied Versus Statistical Forecasting Models

Author(s) -

Brooks Chris,

Chong James

Publication year - 2001

Publication title -

journal of futures markets

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.88

H-Index - 55

eISSN - 1096-9934

pISSN - 0270-7314

DOI - 10.1002/fut.2104

Subject(s) - econometrics , autoregressive conditional heteroskedasticity , univariate , heteroscedasticity , economics , autoregressive model , currency , portfolio , hedge , multivariate statistics , mathematics , statistics , financial economics , volatility (finance) , biology , ecology , monetary economics

This article examines the ability of several models to generate optimal hedge ratios. Statistical modelsemployed include univariate and multivariate generalized autoregressive conditionally heteroscedastic(GARCH) models, and exponentially weighted and simple moving averages. The variances of the hedgedportfolios derived using these hedge ratios are compared with those based on market expectations implied by theprices of traded options. One‐month and three‐month hedging horizons are considered for fourcurrency pairs. Overall, it has been found that an exponentially weighted moving‐average model leads tolower portfolio variances than any of the GARCH‐based, implied or time‐invariant approaches.© 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1043–1069, 2001

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