Journal
QUANTITATIVE FINANCE
Volume 12, Issue 12, Pages 1827-1837Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/14697688.2012.696677
Keywords
Futures hedging; Skewness and kurtosis; SU -normal distribution
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This study uses real price data rather than a simulation approach to investigate how hedging behaviours may change when hedgers consider skewness and excess kurtosis of hedging returns in their decision models. The study involves modelling the time-varying skewness and excess kurtosis of returns. The empirical results show that adding a preference for positively skewed returns to traditional mean-variance models may not lead to more speculative hedging/investment behaviours. Post-hedged return distributions suggest that the third moments of hedged portfolios have probably been well adjusted by mean-variance strategies, rendering three-moment decision models on a par with traditional mean-variance models. Additionally, considering the aversion to excess kurtosis will cause investors to hedge more. The research also provides empirical support for traditional minimum-variance strategies.
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