Hedging effectiveness under conditions of asymmetry

We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics, for example, Value at Risk, to compare the hedging effectiveness of short and long hedgers. Comparisons are applied to a number of hedging strategies including OLS, and both symmetric and asymmetric GARCH models. We apply our analysis to a dataset consisting of S&P500 index cash and futures containing symmetric and asymmetric return distributions chosen ex-post. Our findings show that asymmetry reduces out-of-sample hedging performance and that significant differences occur in hedging performance between short and long hedgers.Science Foundation IrelandEmbargo until 31/07/2013 based on online publication date of 31/01/2012 - OR 01/02/2012 18M embargo, release after 16/10/2012 - AV 10/01/2012 au - kpw13/1/1