Comparative analysis of risk measures for optimal hedge ratio determination

IF 7.4 2区经济学 Q1 BUSINESS, FINANCE Finance Research Letters Pub Date : 2025-01-21 DOI:10.1016/j.frl.2025.106795

Fernanda Maria Müller, Leonardo Teixeira Spindler, Marcelo Brutti Righi

引用次数: 0

Abstract

We present a comparative study of loss and loss-deviation measures for optimal hedge ratio estimation in a minimum-loss and loss-deviation framework. The study encompasses five equity market indices and their futures contracts, covering developed and emerging markets from 2006 to 2024. The results show that the Expected Loss Deviation (ELD) measure leads to an average 94.5% and 82% reduction of variance and Value at Risk (VaR), respectively, thus outperforming other traditional measures, such as Expected Shortfall (ES) and Expectile Value at Risk (EVaR). Risk and loss-deviation measures with significance-level parameters showed increased effectiveness with higher significance levels. This research contributes to the literature by systematically comparing risk measures and highlighting the practical advantages of using loss-deviation measures in optimizing hedging strategies.

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来源期刊

Finance Research Letters BUSINESS, FINANCE-

CiteScore

11.10

自引率

14.40%

发文量

863

期刊介绍： Finance Research Letters welcomes submissions across all areas of finance, aiming for rapid publication of significant new findings. The journal particularly encourages papers that provide insight into the replicability of established results, examine the cross-national applicability of previous findings, challenge existing methodologies, or demonstrate methodological contingencies. Papers are invited in the following areas: Actuarial studies Alternative investments Asset Pricing Bankruptcy and liquidation Banks and other Depository Institutions Behavioral and experimental finance Bibliometric and Scientometric studies of finance Capital budgeting and corporate investment Capital markets and accounting Capital structure and payout policy Commodities Contagion, crises and interdependence Corporate governance Credit and fixed income markets and instruments Derivatives Emerging markets Energy Finance and Energy Markets Financial Econometrics Financial History Financial intermediation and money markets Financial markets and marketplaces Financial Mathematics and Econophysics Financial Regulation and Law Forecasting Frontier market studies International Finance Market efficiency, event studies Mergers, acquisitions and the market for corporate control Micro Finance Institutions Microstructure Non-bank Financial Institutions Personal Finance Portfolio choice and investing Real estate finance and investing Risk SME, Family and Entrepreneurial Finance