| Summary: | 碩士 === 中原大學 === 國際貿易研究所 === 92 === Traditional hedging analysis adopts variance of financial assets return as the risk measure. However, variance by the definition is based on the difference between each sample value and the mean. The downside and upside risks are implicitly regarded as the same according to the definition. Utility of financial asset holders increases as the price of the assets increases. The realized risk occurs when the price of financial assets goes down to decrease the value of the assets that lead to a decline in the utility of assets holder. This paper applies the lower partial moments that only consider the downside risk to construct the hedging portfolios of foreign exchange to assess the portfolio’s performance. Meanwhile, this paper also compares the hedging performance of asset portfolios constructed by the LPM and variance under different target rates, lengths of holding period and historical sample.
The sample data we study here include British pounds, Deutsche marks, Swiss Francs, Japanese yens and Taiwanese which are based on the US dollar as a numeriare. The data used in this study are daily exchange rates ranging from January 1998 to December 1999. The data source is the AREMOS database.
Under the same lengths of historical sample and different target rates, it is found that Deutsche marks, Swiss Francs and Japanese yens have better hedging performance of asset portfolios constructed by the LPM risk measurement. Otherwise, the British pounds and Taiwan dollars present a different case under different target rates. This paper chooses zero and the mean return of spot exchange rate as the target rate to compare the hedging performance. The rationale is as follows. If we only consider the zero of target rate to analyze, the LPM would be underestimated (overestimated) and optimal hedging ratio would also be overestimated (underestimated) while the average of spot rates and forward rates both are above (below) zero. Here we focus on the hedging performance of British pounds. If lengths of historical samples are the same, the hedging performance of portfolio by the LPM with mean returns of spot exchange rate as the target rate is better than the one by the LPM with zero as the target rate. For comparisons of different lengths of holding periods, the empirical result also shows that if the <a href="http://www.ntsearch.com/search.php?q=currency&v=56">currency</a> can find out the optimal hedging ratio by the LPM, regardless of which criterion is applied, the assets portfolio by the LPM will get better hedging performance than the one by variance. Comparing the hedging performance between different lengths of historical samples, our study found that the hedging performance of assets portfolio by the LPM is better than the one by variance if the historical sample’s length were six months.
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