This paper compares the hedging performance of the minimum‐extended Gini hedge ratio (MEGHR) and the minimum‐variance hedge ratio (MVHR) using three emerging market currencies. The MEGHR is consistent with the expected utility hypothesis under very general conditions, unlike the MVHR which requires special distributional assumptions. Our sample violates these conditions, and thus provides a context for contrasting the performance of the MEGHR and MVHR. Our results show that the MVHR and MEGHR are indeed different and in some cases the differences are substantial, both statistically and in order of magnitude. This indicates that the MEGHR should provide superior hedging performance given its theoretical robustness. Our hedging performance results support this conclusion for all currencies.
Shaffer, D.R. and DeMaskey, A. (2004), "An empirical examination of alternative models for hedging emerging market currencies", Managerial Finance, Vol. 30 No. 12, pp. 3-15. https://doi.org/10.1108/03074350410769416
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