In this article, it is shown that although minimum‐variance hedging unambiguously reduces the standard deviation of portfolio returns, it can increase both left skewness and kurtosis; consequently the effectiveness of hedging in terms of value at risk (VaR) and conditional value at risk (CVaR)...

When using derivative instruments such as futures to hedge a portfolio of risky assets, the primary objective is to estimate the optimal hedge ratio (OHR). When agents have mean‐variance utility and the futures price follows a martingale, the OHR is equivalent to the minimum variance hedge...

The authors propose a simplified multivariate GARCH (generalized autoregressive conditional heteroscedasticity) model (the S‐GARCH model), which involves the estimation of only univariate GARCH models, both for the individual return series and for the sum and difference of each pair of series....

In this paper, we compare the estimated minimum-variance hedge ratios from a range of conditional hedging models with the 'realized' minimum variance hedge ratio constructed using intraday data. We show that the reduction in conditionally hedged portfolio variance falls far short of the "ex...