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

Simple item page
dc.contributor.authorCaporin, Massimiliano
dc.contributor.authorJiménez-Martín, Juan-Ángel
dc.contributor.authorGonzález Serrano, Lydia
dc.date.accessioned2023-06-19T23:53:39Z
dc.date.available2023-06-19T23:53:39Z
dc.date.issued2013-10
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: massimiliano.caporin@unipd.it Complutense University of Madrid, Department of Quantitative Economics, e-mail: juanangel@ccee.ucm.es. 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.refereedFALSE
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
dc.description.statusunpub
dc.eprint.idhttps://eprints.ucm.es/id/eprint/23338
dc.identifier.citationAielli, G.P., 2013, Dynamic conditional correlations: on properties and estimation, Journal of Business and Economic Statistics, 31, 282-299. Bauwens, L., S. Laurent and J.V.K. Rombouts, 2005, Multivariate GARCH models: a survey, Journal of Applied Econometrics, 21, 79-109. Black, F., 1990, Equilibrium exchange rate hedging, Journal of Finance 45, 899-907. Bollerslev, T., 1990, Modelling the coherence in short-run nominal exchange rates: a multivariate generalized ARCH model, Review of Economics and Statistics, 72, 498–505. Brooks, C., O.T. Henry, and G. Persand, 2002, The effect of asymmetries on optimal hedge ratios, The Journal of Business, 75, 333‐352. Campbell, J. Y., K. Serfaty-de Medeiros, and L. M. Viceira, 2010, Global Currency Hedging, The Journal of Finance, 65, 87-122. Caporin, M., 2013, Equity and CDS sector indices: dynamic models and risk hedging, North American Review of Economics and Finance, 25, 261-275. Caporin, M., G. Jannin, F. Lisi and B. Maillet, 2012, A survey on the four families of performance measures, Journal of Economic Surveys, forthcoming. Caporin, M., and M. McAleer, 2008, Scalar BEKK and indirect DCC, Journal of Forecasting, 27, 537-549. Caporin, M., and M. McAleer, 2010, A scientific classification of volatility models, Journal of Economic Surveys, 24, 192-195. Caporin, M., and P. Paruolo, 2013, Proximity-structures multivariate volatility models, Econometric Reviews, forthcoming. Cecchetti, S.G., R.E. Cumby, and S. Figlewski, 1988, Estimation of optimal futures hedge, Review of Economics and Statistics, 70, 623‐630. Chang, C., L. Gonzalez-Serrano and J-A. Jiménez-Martin, 2013, Currency hedging strategies using dynamic multivariate GARCH, forthcoming, Mathematics and Computer in Simulation. Chakraborty, A., J.T. Barkoulas, 1999, Dynamic futures hedging in currency markets, The European Journal of Finance, 5, 299-314. De Roon, F., T.E. Nijman, and B. Werker, 2003, Currency hedging for international stock portfolios: the usefulness of mean-variance analysis, Journal of Banking and Finance, 27, 327-349. De Roon, F., E. Eiling, B. Gerard and P. Hillion, 2011, Speculative profits or hedging benefits? Currency investing in Global Portfolios, available at SSRN. Engle, R.F., 2002, Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models, Journal of Business and Economic Statistics, 20, 339-350. Engle, R.F., and K.F. Kroner, 1995, Multivariate simultaneous generalized ARCH, Econometric Theory, 11, 122–150. Hakim, A., M. McAleer, 2009, Forecasting conditional correlations in stock, bond and foreign exchange markets, Mathematics and Computers in Simulation, 79, 2830–2846. Hammoudeh, S., Y. Yuan, M. McAleer, M. Thompson, 2010, Precious Metals Exchange Rate Volatility Transmissions and Hedging Strategies, International Review of Economics and Finance, 20, 633‐647. Israelsen, C.L., 2005, A refinement to the Sharpe ratio and information ratio, Journal of Asset Management, 5, 423-427. Kroner, K.F., J. Sultan, 1993, Time-varying distributions and dynamic hedging with foreign currency futures, Journal of Financial and Quantitative Analysis, 28, 535-551. Ku, Y.H., H.C. Chen, K.H. Chen, 2007, On the application of the dynamic conditional correlation model in estimating optimal time-varying hedge ratios, Applied Economics Letters, 14, 503-509. Ling, S. and M. McAleer, 2003, Asymptotic theory for a vector ARMA-GARCH model, Econometric Theory, 18, 280-310. McAleer, M., 2005, Automated inference and learning in modelling financial volatility, Econometric Theory, 21, 232-261. McAleer, M., S. Hoti, and F. Chan, 2009, Structure and asymptotic theory for multivariate asymmetric conditional volatility, Econometric Reviews, 28, 422-440. Opie, W., C. Brown, and J. Dark, 2012, Dynamic currency hedging for international stock portfolios, Review of futures markets, 20, 419-455. Ripple, R.D., and I.A. Moosa, 2007, Hedging effectiveness and futures contract maturity: the case of NYMEX crude oil futures, Applied Financial Economics, 17, 683-689. Schmittmann, J., 2010, Currency hedging for international portfolios, IMF working papers, WP/10/151. Silvennoinen, A., and Terasvirta, T., 2009, Multivariate GARCH models, in Andersen, T., Davis, R., Kreiss, J., and Mikosch, T., eds., Handbook of financial time series, Springer, 201-229.
dc.identifier.relatedurlhttps://www.ucm.es/icae
dc.identifier.urihttps://hdl.handle.net/20.500.14352/41519
dc.issue.number36
dc.language.isoeng
dc.page.total72
dc.relation.ispartofseriesDocumentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
dc.relation.projectIDSYRTO-SSH-2012-320270
dc.relation.projectIDECO2012-31941
dc.rightsAtribución-NoComercial 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttps://creativecommons.org/licenses/by-nc/3.0/es/
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
dc.typetechnical report
dc.volume.number2013
dspace.entity.typePublication
Download
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
1336.pdf
Size:
1014.1 KB
Format:
Adobe Portable Document Format
downoload Download
Collections
Documentos de trabajo e informes técnicos