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Currency risks hedging for major and minor currencies: constant hedging versus speculative hedging

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  • Myoung Shik Choi

Abstract

Focusing on the recent experience of major and minor currencies, this study examines the effectiveness of constant hedge and speculative hedge respectively with the objective of identifying whether there are any significant differences between both hedges. Our finding is that the speculative hedge is very slightly more effective than the constant hedge in reducing the currency risk. This supports that the speculative hedge about major currencies can be a relevant hedging tool. The analysis also shows that our multiple currency futures hedge can be a good hedging instrument for some minor currencies such as Cyprus pound.

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  • Myoung Shik Choi, 2010. "Currency risks hedging for major and minor currencies: constant hedging versus speculative hedging," Applied Economics Letters, Taylor & Francis Journals, vol. 17(3), pages 305-311, February.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:3:p:305-311
    DOI: 10.1080/13504850701735757
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    References listed on IDEAS

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    1. Imad Moosa, 2004. "Is there a need for hedging exposure to foreign exchange risk?," Applied Financial Economics, Taylor & Francis Journals, vol. 14(4), pages 279-283.
    2. Harvey J. Witt & Ted C. Schroeder & Marvin L. Hayenga, 1987. "Comparison of analytical approaches for estimating hedge ratios for agricultural commodities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 7(2), pages 135-146, April.
    3. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    4. Ser-Huang Poon & Clive W.J. Granger, 2003. "Forecasting Volatility in Financial Markets: A Review," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 478-539, June.
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    Cited by:

    1. Gia Zoidze & George Abuselidze, 2021. "Covid-19 Pandemic And Currency Risk Analysis In Georgia," Entrepreneurship, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 9(2), pages 33-46.

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