Re-Evaluating Hedging Performance

33 Pages Posted: 26 Jun 2007

See all articles by John Cotter

John Cotter

University College Dublin; University of California, Los Angeles (UCLA) - Anderson School of Management

Jim Hanly

Technological University Dublin

Date Written: July 24, 2005

Abstract

Mixed results have been documented for the performance of hedging strategies using futures. This paper reinvestigates this issue using an extensive set of performance evaluation metrics across seven international markets. We compare the hedging performance of short and long hedgers using traditional variance based approaches together with modern risk management techniques including Value at Risk, Conditional Value at Risk and approaches based on Downside Risk. Our findings indicate that using these metrics to evaluate hedging performance, yields differences in terms of best hedging strategy as compared with the traditional variance measure. We also find significant differences in performance between short and long hedgers. These results are observed both in-sample and out-of-sample.

Keywords: Hedging Performance, Lower Partial Moments, Downside Risk, Variance, Semi-Variance, Value at Risk, Conditional Value at Risk

JEL Classification: G10, G12, G15

Suggested Citation

Cotter, John and Hanly, Jim, Re-Evaluating Hedging Performance (July 24, 2005). Available at SSRN: https://ssrn.com/abstract=996074 or http://dx.doi.org/10.2139/ssrn.996074

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jim Hanly

Technological University Dublin ( email )

Dublin
Ireland
+35314023180 (Phone)

HOME PAGE: http://www.jimhanly.com

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