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Reevaluating hedging performance

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  • John Cotter
  • Jim Hanly

Abstract

Mixed results have been documented for the performance of hedging strategies with the use of futures. This article reinvestigates this issue with the use of an extensive set of performance‐evaluation metrics across seven international markets. The hedging performances of short and long hedgers are compared with the use of traditional variance‐based approaches together with modern risk‐management techniques, including value at risk, conditional value at risk, and approaches based on downside risk. The findings indicate that use of these metrics to evaluate hedging performance yields differences in terms of best hedging strategy as compared with the traditional variance measure. Also, significant differences in performance between short and long hedgers are found. These results are observed both in sample and out of sample. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:677–702, 2006

Suggested Citation

  • John Cotter & Jim Hanly, 2006. "Reevaluating hedging performance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(7), pages 677-702, July.
  • Handle: RePEc:wly:jfutmk:v:26:y:2006:i:7:p:677-702
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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G0 - Financial Economics - - General

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