RT Report
T1 Currency Hedging Strategies Using Dynamic Multivariate GARCH
A1 Chang, Chia-Lin
A1 González Serrano, Lydia
A1 Jiménez Martín, Juan Ángel
AB This paper examines the effectiveness of using futures contracts as hedging instruments of: (1) alternative models of volatility for estimating conditional variances and covariances; (2) alternative currencies; and (3) alternative maturities of futures contracts.For this purpose, daily data of futures and spot exchange rates of three major international currencies, Euro, British pound and Japanese yen, against the American dollar, are used to analyze hedge ratios and hedging effectiveness resulting from usingtwo different maturity currency contracts, near-month and next-to-near-month contract. Following Chang et al. [17], we estimate four multivariate volatility models (namely CCC, VARMA-AGARCH, DCC and BEKK), and calculate optimal portfolio weightsand optimal hedge ratios to identify appropriate currency hedging strategies. The hedging effectiveness index suggests that the best results in terms of reducing the variance of the portfolio are for the USD/GBP exchange rate. The empirical resultsshow that futures hedging strategies are slightly more effective when the near-month future contract is used for the USD/GBP and USD/JPY currencies. Moreover, the CCC and AGARCH models provide similar hedging effectiveness, which suggests thatdynamic asymmetry may not be crucial empirically, although some differences appear when the DCC and BEKK models are used.
SN 2341-2356
YR 2012
FD 2012
LK https://hdl.handle.net/20.500.14352/49082
UL https://hdl.handle.net/20.500.14352/49082
LA eng
NO The authors are most grateful for the helpful comments and suggestions of Michael McAleer, Teodosio Perez Amaral, two referees, and participants at the international Conference on Risk Modelling and Management, Madrid, Spain, June 2011. The first author is most grateful for the financial support of the National Science Council, Taiwan, and the second author acknowledges the financial support of the Ministerio de Ciencia y Tecnología and Comunidad de Madrid, Spain.
DS Docta Complutense
RD 8 abr 2025