The cross-currency hedging performance of implied versus statistical forecasting models

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Chong, J. (2001) The cross-currency hedging performance of implied versus statistical forecasting models. Journal of Futures Markets, 21 (11). pp. 1043-1069. ISSN 1096-9934 doi: 10.1002/fut.2104

Abstract/Summary

This article examines the ability of several models to generate optimal hedge ratios. Statistical models employed include univariate and multivariate generalized autoregressive conditionally heteroscedastic (GARCH) models, and exponentially weighted and simple moving averages. The variances of the hedged portfolios derived using these hedge ratios are compared with those based on market expectations implied by the prices of traded options. One-month and three-month hedging horizons are considered for four currency pairs. Overall, it has been found that an exponentially weighted moving-average model leads to lower portfolio variances than any of the GARCH-based, implied or time-invariant approaches.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/35960
Identification Number/DOI	10.1002/fut.2104
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Wiley
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