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

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  • Jimmy E. Hilliard
  • Pinghsun Huang

Abstract

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 hedging performance of the stack. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:587–606, 2005

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  • Jimmy E. Hilliard & Pinghsun Huang, 2005. "An empirical analysis of multi‐period hedges: Applications to commercial and investment assets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(6), pages 587-606, June.
    • Handle: RePEc:wly:jfutmk:v:25:y:2005:i:6:p:587-606
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    Cited by:

    1. Jonathan M. Godbey & Jimmy E. Hilliard, 2007. "Adjusting stacked-hedge ratios for stochastic convenience yield: a minimum variance approach," Quantitative Finance, Taylor & Francis Journals, vol. 7(3), pages 289-300.

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