Comparisons of short and long hedge performance: the case of Taiwan

This study examines the performance of short and long hedgers using four stock index futures contracts traded at the Taiwan Futures Exchange. We compare the optimal hedge ratios and resulting hedge performances based on three risk measures: variance, extended Gini, and lower partial moment. We find that long hedgers achieve greater hedging performance than short hedgers for both the minimum-extended Gini and minimum-lower partial moment hedge ratios. These results are observed in both in-sample and post-sample analyses. We also find that the minimum-extended Gini hedge ratio dominates the lower partial hedge ratio in terms of post-sample hedging performance.