TY - JOUR
T1 - A comparison of measures of hedging effectiveness
T2 - A case study using the Australian All Ordinaries Share Price Index Futures contract
AU - Brailsford, Tim
AU - Corrigan, Katherine
AU - Heaney, Richard
PY - 2001
Y1 - 2001
N2 - Hedging is claimed to be of fundamental importance in managing the risk of an investment portfolio. Several techniques to assess the effectiveness of a hedge have been suggested in the literature. While these techniques hold theoretical appeal, there is little empirical evidence as to their usefulness. This paper provides an empirical comparison of three measures of hedge effectiveness in the context of hedging market risk using the Australian All Ordinaries Share Price Index Futures contract. The three measures are portfolio S.D. ranking, the Howard and D'Antonio [Howard, C.T., D'Antonio, L.J., 1987. A risk return measure of hedging effectiveness: a reply. J. Finan. Quant. Anal. 22(3), 377-381.] measure and the Lindahl [Lindahl, M., 1991. Risk-return hedging effectiveness measures for stock index futures. J. Futures Markets 11(4), 399-409.] measure. The results indicate that the selection of the particular measure of hedge effectiveness has an impact on the assessment of hedged portfolios. Further, the paper highlights problems that arise in the application of the Lindahl [Lindahl, M., 1991. Risk-return hedging effectiveness measures for stock index futures, J. Futures Markets 11(4), 399-409.] and Howard and D'Antonio [Howard, C.T., D'Antonio, L.J., 1987. A risk return measure of hedging effectiveness: a reply, J. Finan. Quant. Anal. 22(3), 377-381.] measures.
AB - Hedging is claimed to be of fundamental importance in managing the risk of an investment portfolio. Several techniques to assess the effectiveness of a hedge have been suggested in the literature. While these techniques hold theoretical appeal, there is little empirical evidence as to their usefulness. This paper provides an empirical comparison of three measures of hedge effectiveness in the context of hedging market risk using the Australian All Ordinaries Share Price Index Futures contract. The three measures are portfolio S.D. ranking, the Howard and D'Antonio [Howard, C.T., D'Antonio, L.J., 1987. A risk return measure of hedging effectiveness: a reply. J. Finan. Quant. Anal. 22(3), 377-381.] measure and the Lindahl [Lindahl, M., 1991. Risk-return hedging effectiveness measures for stock index futures. J. Futures Markets 11(4), 399-409.] measure. The results indicate that the selection of the particular measure of hedge effectiveness has an impact on the assessment of hedged portfolios. Further, the paper highlights problems that arise in the application of the Lindahl [Lindahl, M., 1991. Risk-return hedging effectiveness measures for stock index futures, J. Futures Markets 11(4), 399-409.] and Howard and D'Antonio [Howard, C.T., D'Antonio, L.J., 1987. A risk return measure of hedging effectiveness: a reply, J. Finan. Quant. Anal. 22(3), 377-381.] measures.
UR - http://www.scopus.com/inward/record.url?scp=0042870245&partnerID=8YFLogxK
U2 - 10.1016/S1042-444X(01)00036-6
DO - 10.1016/S1042-444X(01)00036-6
M3 - Article
AN - SCOPUS:0042870245
SN - 1042-444X
VL - 11
SP - 465
EP - 481
JO - Journal of Multinational Financial Management
JF - Journal of Multinational Financial Management
IS - 4-5
ER -