The role of long memory in hedging effectiveness
Coakley, Jerry; Dollery, Jian; Kellard, Neil
Dr Jian Wang J.Wang@hull.ac.uk
A joint fractionally integrated, error-correction and multivariate GARCH (FIEC-BEKK) approach is applied to investigate hedging effectiveness using daily data 1995–2005. The findings reveal the proxied error-correction term has a long memory component that theoretically should affect hedging effectiveness. When the FIEC model empirical conditions are satisfied, the FIEC-BEKK hedging strategy outperforms the OLS benchmark out of sample in terms of both variance reduction and hedger utility. A bootstrap exercise indicates that the variance reduction is statistically significant.
Coakley, J., Dollery, J., & Kellard, N. (2007). The role of long memory in hedging effectiveness. Computational Statistics and Data Analysis, 52(6), 3075 - 3082. https://doi.org/10.1016/j.csda.2007.10.019
|Journal Article Type||Article|
|Publication Date||Oct 30, 2007|
|Deposit Date||Dec 13, 2019|
|Journal||Computational Statistics and Data Analysis|
|Peer Reviewed||Peer Reviewed|
|Pages||3075 - 3082|
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