Optimal Hedge Ratio and Hedging Effectiveness of Foreign Currency Futures: Evidence From British Pound / US Dollar and Euro / US Dollar Futures


Büberkökü Ö.

Optimal Hedge Ratio and Hedging Effectiveness of Foreign Currency Futures: Evidence From British Pound / US Dollar and Euro / US Dollar Futures, Dr. Öğr. Üyesi İsmail ELAGÖZ Dr. Öğr. Üyesi Göktürk ERDOĞAN, Editör, Gece Akademi, Ankara, ss.1-22, 2018

  • Basım Tarihi: 2018
  • Yayınevi: Gece Akademi
  • Basıldığı Şehir: Ankara
  • Sayfa Sayıları: ss.1-22
  • Editörler: Dr. Öğr. Üyesi İsmail ELAGÖZ Dr. Öğr. Üyesi Göktürk ERDOĞAN, Editör

Özet

This study estimates the optimal hedge ratios and hedging effectiveness for two major currency exchanges, namely British Pound / US Dollar and Euro / US Dollar, using various methods, including the conventional OLS, VAR, VECM, and short- and long-memory, univariate GARCH-type models. The results clearly show that the hedge ratios estimated by the OLS, FIGARCH and HYGARCH methods provide the highest HE for the British Pound / US Dollar exchange, whereas the OLS method is superior to the other investigated alternatives for the Euro / US Dollar exchange. However, although most of the models examined in this study provide rather similar HE to each other, if any investor or financial institution wanted only one model to use to determine the OHR for both currencies, they should prefer the OLS model, which among all the models described in this study presents some of the highest HE for each currency and is also the easiest model to implement.