Abstract
This study empirically compares the hedging performances of the newly listed Japanese yen (JPY) and European euro (EUR) currency futures in the KRX relative to that of the us dollar (USD) currency futures. For this purpose, assuming the situation of foreign-asset investment the minimum variance hedging models based on OLS and ECM are compared with a simple 1: 1 hedge. The difference between previous studies and this one is in that the latter uses various kinds of hedging performance measures and analyzes the hedging performances by different hedging horizon. According to the empirical results, the USD currency futures outperforms the JPY and EUR currency futures when considering the risk only.
However, the results are reversed wilen incorporating the return as well as the risk. With respect to the comparative advantages among hedging types, the ECM-hedge turns out to be better than the others for evaluating the risk only, and the 1: 1 hedge proves to be superior to the others when considering both of the return and risk aspects. Based on the risk-reduction aspect. the hedging performances are gradually improving as the length of hedging period increases, while they deteriorate for considering both the return and risk aspects.
Keywords
Citation
Yun, W.C. (2007), "Comparative Analysis on the Hedging Effectiveness Among Domestic Currency Futures Contracts", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 15 No. 1, pp. 41-72. https://doi.org/10.1108/JDQS-01-2007-B0002
Publisher
:Emerald Publishing Limited
Copyright © 2007 Emerald Publishing Limited
License
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