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  • Strategy 1 Strategy 2 Strategy 3 Strategy 4

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    Neeta Lokhunde
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    1) The document analyzes different hedging strategies for portfolios in South Korea and finds that Strategy 2 performs better than Strategy 1 at a 1% confidence level. 2) It ranks the strategies from best to worst performance as Strategy 2, Strategy 3, Strategy 4, Strategy 1 based on their significance differences over time. 3) By using a GARCH model, it determines that a time-varying co-integrating hedge ratio performs the best compared to simple constant hedge ratio strategies, especially before and after the Asian financial crisis.

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    1) The document analyzes different hedging strategies for portfolios in South Korea and finds that Strategy 2 performs better than Strategy 1 at a 1% confidence level. 2) It ranks the strategies from best to worst performance as Strategy 2, Strategy 3, Strategy 4, Strategy 1 based on their significance differences over time. 3) By using a GARCH model, it determines that a time-varying co-integrating hedge ratio performs the best compared to simple constant hedge ratio strategies, especially before and after the Asian financial crisis.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    Download as pptx, pdf, or txt
    20 views4 pages

    Strategy 1 Strategy 2 Strategy 3 Strategy 4

    Uploaded by

    Neeta Lokhunde
    1) The document analyzes different hedging strategies for portfolios in South Korea and finds that Strategy 2 performs better than Strategy 1 at a 1% confidence level. 2) It ranks the strategies from best to worst performance as Strategy 2, Strategy 3, Strategy 4, Strategy 1 based on their significance differences over time. 3) By using a GARCH model, it determines that a time-varying co-integrating hedge ratio performs the best compared to simple constant hedge ratio strategies, especially before and after the Asian financial crisis.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 4

    At 1% confidence level

    strategy 2 is better than


    strategy 1.
    There is significance
    difference between the
    performance of any 2
    strategies at a given point
    of time.
    Hence, in order of
    preference the strategies
    is ranked as

    Hedged Portfolio Risks for the Full Sample


    Mean

    Std Dev

    Min

    Max

    1: week
    1p
    2p
    3p
    4p

    0.0196
    0.0191
    0.0194
    0.0194

    0.0143
    0.014
    0.0142
    0.0142

    0.0013
    0.0006
    0.0006
    0.0006

    0.0829
    0.0785
    0.0807
    0.0807

    1: month
    1p
    2p
    3p
    4p

    0.0194
    0.0189
    0.0193
    0.0193

    0.0128
    0.0126
    0.0128
    0.0128

    0.0018
    0.001
    0.0012
    0.0012

    0.0582
    0.0562
    0.0577
    0.0577

    3: month
    1p
    2p
    3p
    4p

    0.0188
    0.0183
    0.0187
    0.0188

    0.0117
    0.0117
    0.0117
    0.0116

    0.0021
    0.0016
    0.0019
    0.0019

    0.0427
    0.0415
    0.0426
    0.0426

    Strategy 1 > Strategy 2 > Strategy 3 > Strategy 4

    Analysis..
    Constant hedge ration is performing better
    due to the market reacting quicker to the
    information content revealed in lagged
    volatility and hence the hedge ration is
    actually decreased.

    Analysis using GARCH Model


    The Hedge ratios,
    Hedged Portfolio risks
    are compared through
    GARCH Model.
    The result show that in
    the case of South Korea,
    the level of risk and its
    volatility structure are
    different from other
    markets.

    1- week
    1p
    2p
    1- week
    3p
    4p

    Hedged Portfolio Risk Using the GARCH (1,1) Model


    Full- Sample
    Pre-Crisis
    Post- Crisis
    Mean
    Test-Stat S-4
    Mean Test-Stat
    S-1 Test-Stat
    S-2 Mean S-3
    0.0196
    3.36
    0.0067
    5.86
    0.0297
    3.29
    0.0191
    2.39
    0.0065
    7.44
    0.0275
    1.74
    10.328 2.557.128
    0.0194
    0.0066 15.3496.67 8.873
    0.0282
    2.08
    0.0194
    2.54
    0.0066
    6.48
    0.0282
    2.08

    1-month
    1- month
    1p
    2p
    3-month
    3p
    4p
    6-month

    14.488

    8.61

    18.139

    10.737

    0.0194
    0.0189
    18.845
    0.0193
    0.0193
    20.728

    4.02
    0.0062
    12.95
    0.0297
    2.898.8110.006 18.971
    15.38 14.321
    0.0296
    3.16
    0.0062
    13.16
    0.0285
    3.28
    0.0062
    12.8
    0.0286
    14.151
    20.783
    17.512

    4.51
    2.59
    3.13
    3.25

    3-month
    1p
    1-year
    2p
    3p
    4p

    0.0188
    23.441
    0.0183
    0.0187
    0.0188

    4.6914.430.006 23.322
    27.83 23.106
    0.0291
    3.39
    0.0058
    35.57
    0.027
    3.85
    0.006
    28.83
    0.028
    3.87
    0.006
    25.73
    0.0281

    6.31
    3.96
    4.61
    4.78

    Conclusion
    This Paper evaluates hedging effectiveness before
    and after Asian financial Market crisis.
    It shows that co-integrating time-varying hedge
    ratio performs the best when compared to simple
    constant-hedge ratio strategies.
    This paper suggest that : Hedgers in Asian
    market must be aware of the possible changes in
    risk structure that have occurred and such
    changes may occur again in the future

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