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The role of long memory in hedging effectiveness

Coakley, J and Dollery, J and Kellard, N (2008) 'The role of long memory in hedging effectiveness.' Computational Statistics and Data Analysis, 52 (6). 3075 - 3082. ISSN 0167-9473

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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. © 2007 Elsevier B.V. All rights reserved.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Neil Kellard
Date Deposited: 15 Nov 2011 10:18
Last Modified: 27 Nov 2017 12:15
URI: http://repository.essex.ac.uk/id/eprint/1504

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