Currency hedging strategies, strategic benchmarks and the Global and Euro Sovereign financial crises

dc.contributor.authorCaporin, Massimiliano
dc.contributor.authorJiménez-Martín, Juan-Ángel
dc.contributor.authorGonzález Serrano, Lydia
dc.descriptionJEL codes: C32, C53, C58, G01, G11, G15, G17, G23, G32. The first author acknowledges financial support from MIUR PRIN project MISURA - Multivariate Statistical Models for Risk Assessment and from the European Union, Seventh Framework Programme FP7/2007-2013 under grant agreement SYRTO-SSH-2012-320270. The second author acknowledges financial support of the Ministerio de Ciencia y Tecnología of Spain through the research project ECO2012-31941. University of Padova, Department of Economics and Management “Marco Fanno”, e-mail: Complutense University of Madrid, Department of Quantitative Economics, e-mail: Corresponding author Rey Juan Carlos University, Department of Business Administration.
dc.description.abstractThis paper investigates dynamic currency hedging benefits, with a further focus on the impact of currency hedging before and during the recent financial crises originated from the subprime and the Euro sovereign bonds. We take the point of view of a Euro-based institutional investor who considers passive investment strategies in portfolios holding European, British and US assets. We analyze the impact of the model specification to improve the risk-return tradeoff when currency risk is hedged. Hedging strategies of currency risk, using exchange rates futures and driven by several multivariate GARCH models, depend on the portfolio composition and period analyzed. Dynamic covariance models provide limited evidences of a decrease in hedging rations compared to naïve hedging strategies based on linear regressions or variance smoothing. Nevertheless, those results are coupled with better performances of dynamic covariance models in terms of hedging effectiveness an improved Sharpe ratios. The empirical evidences are observed both in-sample as well as in an out-of-sample exercise.
dc.description.facultyFac. de Ciencias Económicas y Empresariales
dc.description.facultyInstituto Complutense de Análisis Económico (ICAE)
dc.description.sponsorshipMultivariate Statistical Models for Risk Assessment and from the European Union, Seventh Framework Programme FP7/2007-2013
dc.description.sponsorshipMinisterio de Ciencia y Tecnología of Spain
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dc.relation.ispartofseriesDocumentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
dc.rightsAtribución-NoComercial 3.0 España
dc.rights.accessRightsopen access
dc.subject.keywordMultivariate GARCH
dc.subject.keywordConditional correlations
dc.subject.keywordCurrency futures
dc.subject.keywordOptimal hedge ratios
dc.subject.keywordHedging strategies.
dc.subject.ucmEconometría (Economía)
dc.subject.unesco5302 Econometría
dc.titleCurrency hedging strategies, strategic benchmarks and the Global and Euro Sovereign financial crises
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