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A Risk-Return Measure of Hedging Effectiveness: A Comment

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  • Chang, Jack S. K.
  • Shanker, Latha

Abstract

This paper points out an error and implications of the error in the model of hedging effectiveness proposed by Howard and D'Antonio (1). The error would lead to ambiguous results if the model were used in practical applications to select the best hedging instrument. This paper proposes a new measure of hedging effectiveness that eliminates the error in the original model and resolves the ambiguity.

Suggested Citation

  • Chang, Jack S. K. & Shanker, Latha, 1987. "A Risk-Return Measure of Hedging Effectiveness: A Comment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 373-376, September.
    • Handle: RePEc:cup:jfinqa:v:22:y:1987:i:03:p:373-376_01
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    Cited by:

    1. de Jong, A. & de Roon, F.A. & Veld, C.H., 1995. "An empirical analysis of the hedging effectiveness of currency futures," Discussion Paper 1995-119, Tilburg University, Center for Economic Research.
    2. Kam Fong Chan & Christopher Gan & Patricia A. McGraw, 2003. "A Hedging Strategy for New Zealand’s Exporters in Transaction Exposure to Currency Risk," Multinational Finance Journal, Multinational Finance Journal, vol. 7(1-2), pages 25-54, March-Jun.
    3. Christian Dunis & Pierre Lequeux, 2000. "Intraday data and hedging efficiency in interest spread trading," The European Journal of Finance, Taylor & Francis Journals, vol. 6(4), pages 332-352.
    4. Wan-Yi Chiu, 2021. "Mean-variance hedging in the presence of estimation risk," Review of Derivatives Research, Springer, vol. 24(3), pages 221-241, October.
    5. Chiu, Wan-Yi, 2013. "A simple test of optimal hedging policy," Statistics & Probability Letters, Elsevier, vol. 83(4), pages 1062-1070.
    6. Maria CARACOTA DIMITRIU & Ioana – Diana PAUN, 2012. "Short Term Hedging Using Futures Contracts," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(2), pages 436-445, December.
    7. Roberto Blanco, 1992. "Coberturas de carteras de bonos con futuros financieros: evidencia en el caso español," Investigaciones Economicas, Fundación SEPI, vol. 16(3), pages 463-487, September.
    8. Wan-Yi Chiu, 2020. "The global minimum variance hedge," Review of Derivatives Research, Springer, vol. 23(2), pages 121-144, July.

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