An empirical analysis of multi-period hedges: Applications to commercial and investment assets

✍ Scribed by Jimmy E. Hilliard; Pinghsun Huang

• Publisher: John Wiley and Sons
• Year: 2005
• Tongue: English
• Weight: 152 KB
• Volume: 25
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.20156

✦ Synopsis

This study measures the performance of stacked hedge techniques with applications to investment assets and to commercial commodities. The naive stacked hedge is evaluated along with three other versions of the stacked hedge, including those which use exponential and minimum variance ratios. Three commercial commodities (heating oil, light crude oil, and unleaded gasoline) and three investment assets (British Pounds, Deutsche Marks, and Swiss Francs) are examined. The evidence suggests that stacked hedges perform better with investment assets than with commercial commodities. Specifically, deviations from the cost-of-carry model result in nontrivial hedge errors in the stacked hedge. Exponential and minimum variance hedge ratios were found to marginally improve the The authors acknowledge the helpful comments of Wolfgang Buehler, an anonymous referee, and the guidance of the editor, Robert Webb. We retain full responsibility for errors.