Hedging effectiveness is the proportion of price risk removed through hedging. Empirical hedging studies typically … estimate a set of risk minimizing hedge ratios, estimate the hedging effectiveness statistic, apply the estimated hedge ratios … to a second group of data, and examine the robustness of the hedging strategy by comparing the hedging effectiveness for …

This study focuses on hedging effectiveness defined as the proportionate price risk reduction created by hedging. By … overstate the amount of price risk reduction that can be achieved by hedging, (b) the properly computed hedging effectiveness in … data results in an unbiased estimate of hedging effectiveness, (e) application of hedge ratios computed from small samples …