Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
417288 | Computational Statistics & Data Analysis | 2008 | 8 Pages |
Abstract
A joint fractionally integrated, error-correction and multivariate GARCH (FIEC-BEKK) approach is applied to investigate hedging effectiveness using daily data 1995–2005. The findings reveal the proxied error-correction term has a long memory component that theoretically should affect hedging effectiveness. When the FIEC model empirical conditions are satisfied, the FIEC-BEKK hedging strategy outperforms the OLS benchmark out of sample in terms of both variance reduction and hedger utility. A bootstrap exercise indicates that the variance reduction is statistically significant.
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Authors
Jerry Coakley, Jian Dollery, Neil Kellard,