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Alternative Hedging Models for the Brazilian Exchange Market: A Comparative Analysis

Author

Listed:
  • Daniel Loureiro Araújo
  • Aureliano Angel Bressan
  • Clayton Peixoto Goulart

Abstract

This paper attempts to assess the hedge effectiveness of four hedging models in the Brazilian futures exchange rate market, with daily data from January 1999 to September 2004. The models that were analyzed are naive (full hedge) model; conventional OLS model and error correction model with and without a GARCH error structure. As a general result, the error correction model was found to be superior to others, and the dynamic estimation of the conventional and error correction models seems to be enough to take into account the time-varying feature of the hedge ratios.

Suggested Citation

  • Daniel Loureiro Araújo & Aureliano Angel Bressan & Clayton Peixoto Goulart, 2007. "Alternative Hedging Models for the Brazilian Exchange Market: A Comparative Analysis," The IUP Journal of Applied Economics, IUP Publications, vol. 0(5), pages 45-69, September.
    • Handle: RePEc:icf:icfjae:v:06:y:2007:i:5:p:45-69
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