Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Person: pch286 
Author-Workplace-Name: Department of Applied Economics, Department of Finance, National Chung Hsing University
	Taichung, Taiwan
Author-Name: Lydia González-Serrano
Author-Workplace-Name: Department of Business Administration Rey Juan Carlos University
Author-Name: Juan-Ángel Jiménez-Martín
Author-Email: juanangel@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/jajm
Author-Person: pji27 
Author-Workplace-Name: Departamento de Economía Cuantitativa (Department of Quantitative Economics), 
	Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad 
	Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Title: Currency Hedging Strategies Using Dynamic Multivariate GARCH
Abstract: This paper examines the effectiveness of using futures contracts as hedging instruments
	of: (1) alternative models of volatility for estimating conditional variances and
	covariances; (2) alternative currencies; and (3) alternative maturities of futures contracts.
	For this purpose, daily data of futures and spot exchange rates of three major
	international currencies, Euro, British pound and Japanese yen, against the American
	dollar, are used to analyze hedge ratios and hedging effectiveness resulting from using
	two different maturity currency contracts, near-month and next-to-near-month contract.
	Following Chang et al. [17], we estimate four multivariate volatility models (namely
	CCC, VARMA-AGARCH, DCC and BEKK), and calculate optimal portfolio weights
	and optimal hedge ratios to identify appropriate currency hedging strategies. The
	hedging effectiveness index suggests that the best results in terms of reducing the
	variance of the portfolio are for the USD/GBP exchange rate. The empirical results
	show that futures hedging strategies are slightly more effective when the near-month
	future contract is used for the USD/GBP and USD/JPY currencies. Moreover, the CCC
	and AGARCH models provide similar hedging effectiveness, which suggests that
	dynamic asymmetry may not be crucial empirically, although some differences appear
	when the DCC and BEKK models are used.
Classification-JEL: G32, G11, G17, C53, C22.
Keywords: Multivariate GARCH, conditional correlations, exchange rates, optimal hedge ratio, optimal portfolio 
	weights, hedging strategies.
Length: 36 pages 
Creation-Date: 2012 
Revision-Date: 2012-02 
Number: 2012-07 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1207.txt
File-URL: https://eprints.ucm.es/id/eprint/14831/1/1207.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1207