Template-type: ReDIF-Paper 1.0
Author-Name: Massimiliano Caporin 
Author-Email: massimiliano.caporin@unipd.it
Author-Person: pca441
Author-Workplace-Name: Dipartimento di Scienze Economiche "Marco Fanno" (Department of Economics and Management), 
	Università degli Studi di Padova (University of Padua
Author-Workplace-Homepage: http://www.decon.unipd.it/
Author-Name: Juan Ángel Jiménez Martín
Author-Person: pji27
Author-Email: juanangel@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/jajm
Author-Workplace-Name: Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa). Universidad Complutense de 
	Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage: https://www.ucm.es/icae
Author-Name: Lydia González-Serrano
Author-Workplace-Name: Department of Business Administration Rey Juan Carlos University
Title: Currency hedging strategies, strategic benchmarks and the Global and Euro Sovereign financial crises
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: C32, C53, C58, G01, G11, G15, G17, G23, G32
Keywords: Multivariate GARCH, Conditional correlations, Exchange rates, Optimal hedge ratio, Optimal portfolio weights, Hedging 
	strategies.
Note: The authors are most grateful for the helpful comments and suggestions of Michael
 McAleer, Teodosio Perez Amaral, two referees, 
	and participants at the International
 Conference on Risk Modelling and Management, Madrid, Spain, June 2011. The first
 author 
	is most grateful for the financial support of the National Science Council,
 Taiwan, and the second author acknowledges the 
	financial support of the Ministerio de
 Ciencia y Tecnología and Comunidad de Madrid, Spain.
Length: 72 pages 
Creation-Date: 2013-06  
Number: 2013-36  
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1336.txt
File-URL: https://eprints.ucm.es/id/eprint/23338/1/1336.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1336