Currency hedging strategies, strategic benchmarks and the Global and Euro Sovereign financial crises
This paper investigates dynamic currency hedging benefits, with a further focus on the impact of currency hedging before and during the recent financial crises originated from the subprime and the Euro sovereign bonds. We take the point of view of a Euro-based institutional investor who considers pa...
| Autores: | , , |
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 2013 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | inglés |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/41519 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/41519 |
| Access Level: | acceso abierto |
| Palabra clave: | Multivariate GARCH Conditional correlations Currency futures Optimal hedge ratios Hedging strategies. Econometría (Economía) 5302 Econometría |
| Sumario: | This paper investigates dynamic currency hedging benefits, with a further focus on the impact of currency hedging before and during the recent financial crises originated from the subprime and the Euro sovereign bonds. We take the point of view of a Euro-based institutional investor who considers passive investment strategies in portfolios holding European, British and US assets. We analyze the impact of the model specification to improve the risk-return tradeoff when currency risk is hedged. Hedging strategies of currency risk, using exchange rates futures and driven by several multivariate GARCH models, depend on the portfolio composition and period analyzed. Dynamic covariance models provide limited evidences of a decrease in hedging rations compared to naïve hedging strategies based on linear regressions or variance smoothing. Nevertheless, those results are coupled with better performances of dynamic covariance models in terms of hedging effectiveness an improved Sharpe ratios. The empirical evidences are observed both in-sample as well as in an out-of-sample exercise. |
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