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Measuring quantile risk hedging effectiveness: a GO-GARCH-EVT-copula approach

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  • Madhusudan Karmakar
  • Udayan Sharma

Abstract

In this study, we propose a new GO-GARCH-EVT-copula combined approach to estimate minimum quantile risk hedge ratios. We examine the hedging effectiveness of the proposed model in comparison with three other competing models. In doing so, we consider thirty-five pairs of daily spot and futures price series data from various stock, currency, and commodity markets across the world. The evidence suggests that the proposed combined approach performs best in estimating minimum quantile risk hedge ratios. The superior performance is likely due to the combined approach’s ability to appropriately capture the statistical features of the data.

Suggested Citation

  • Madhusudan Karmakar & Udayan Sharma, 2020. "Measuring quantile risk hedging effectiveness: a GO-GARCH-EVT-copula approach," Applied Economics, Taylor & Francis Journals, vol. 52(48), pages 5244-5262, October.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:48:p:5244-5262
    DOI: 10.1080/00036846.2020.1761535
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    Cited by:

    1. Tehrani , Reza & Veisizadeh , Vahid, 2021. "Dynamic Cross Hedging Effectiveness between Gold and Stock Market Based on Downside Risk Measures: Evidence from Iran Emerging Capital Market," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(1), pages 43-70, March.

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