A Risk-Return Measure of Hedging Effectiveness

Howard, C. Thomas; D'Antonio, Louis J.

doi:10.2307/2331004

Cited by 146 publications

(86 citation statements)

References 14 publications

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“…Hedging focuses on risk elimination. The hedging effectiveness concept keeps evolving through time, like Howard and D'Antonio (1984) who introduced a hedging effectiveness measurement adapted from both the modern portfolio theory introduced by Markowitz (1959), and simplified and with a more applicable hedging effectiveness concept by Ku et al (2007).…”

Section: Hedging Effectivenessmentioning

confidence: 99%

The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

Robiyanto¹,

Wahyudi²,

Pangestuti

2017

GADJAH MADA INT. J. BUS.

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Abstract:This study evaluates the use of futures contracts for precious metals to hedge against stock market risks and their hedging effectiveness on the Indonesian Stock Exchange (IDX) and the Kuala Lumpur Stock Exchange (KLSE). This study found that gold was the most effective hedging instrument, since it produced the highest hedging effectiveness both on the IDX and the KLSE among the other precious metals. None of the hedged portfolios had a higher Sharpe's ratio than the unhedged one on the IDX; however, all the hedged portfolios on the KLSE had a higher Sharpe's ratio than the unhedged ones. Almost all the hedged portfolios could produce a higher Treynor's ratio than the unhedged portfolios, both on the IDX and the KLSE. In general, this study concluded that studying some precious metals could reduce the investment risk, which was shown through the variance produced by the smaller portfolios, while gold can improve the risk-adjusted performance.

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Section: Hedging Effectivenessmentioning

confidence: 99%

The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

Robiyanto¹,

Wahyudi²,

Pangestuti

2017

GADJAH MADA INT. J. BUS.

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“…HowardC T et al (1984) pursued the objective of maximizing the Sharpe ratio, established a futures hedging optimization model and theoretically derived futures hedge ratio [34].…”

Section: Arbitrage Theory Researchmentioning

confidence: 99%

A Literature Review of Treasury Bond Futures Pricing and Arbitrage Method

Wang¹,

Yu²,

Liu³

2015

Proceedings of the 2015 International Conference on Engineering Management, Engineering Education and Information Technology

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Abstract.5-year and 10-year term treasury bond futures were launched officially in September 6, 2013 and March 20, 2015, marking the interest rate futures re-board the stage of history. Academic study of treasury bond futures gradually becomes a hot issue, this article describes the difficult and hot issues at home and abroad from the aspects of futures pricing theory, the relationship between the spot and arbitrage.

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“…The method of Sharpe hedge ratio involves the maximization of the Sharpe ratio of the hedged portfolio (for instance, Howard and D'Antonio, 1984). According to Chen, Lee, and Shrestha (2003), when the expected value of risk-free interest rate is zero, the Sharpe hedge ratio degenerates to the MV hedge ratio estimated by the conventional approach.…”

Section: Brief Literature Review Of Hedge Ratiosmentioning

confidence: 99%

Hedging with Foreign-Listed Single Stock Futures

Hung

Lee

2004

Advances in Quantitative Analysis of Finance &Amp; Accounting

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The objective of this paper is to estimate the hedge ratios of foreign-listed single stock futures (SSFs) and to compare the performance of risk reduction of different methods. The OLS method and a bivariate GJR-GARCH model are employed to estimate constant optimal hedge ratios and the dynamic hedging ratios, respectively. Data of the SSFs listed on the London International Financial Future and Options Exchange (LIFFE) are used in this research. We find that the data series have high estimated constant optimal hedge ratios and high constant correlation in the bivariate GJR-GARCH model, except for three SSFs with their underlying stocks traded in Italy. Our findings provide evidence that distance is a critical factor when explaining investor's trading behavior. Results also show that in general, of the three methods examined (i.e., naïve hedge, conventional OLS method, and dynamic hedging) the dynamic hedging performs the best and that naïve hedge is the worst.

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A Risk-Return Measure of Hedging Effectiveness

Cited by 146 publications

References 14 publications

The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

A Literature Review of Treasury Bond Futures Pricing and Arbitrage Method

Hedging with Foreign-Listed Single Stock Futures

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