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The Hedging Effectiveness of Newly Introduced Yen Currency Futures Contract

윤원철
경제연구소 (Hanyang Economic Research Institute)|2007.11|Journal of Economic Research (JER)|제12권 제2호|pp. 113-132|DOI 10.17256/jer.2007.12.2.001

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참고문헌

키워드

Yen Currency FuturesHedging EectivenessDirectand Cross Hedges
주제분류경제학

초록

Despite of regional closeness and active trading between Korea and Japan, there is little empirical analysis on the foreign exchange risk of Korean won and Japanese yen. Recently, the Korea Exchange (KRX) has introduced a Japanese yen currency futures contract. The main objective of this study is to examine the hedging perfor- mance of this foreign exchange hedging tool. This study sets up a theoretical framework for capital investment hedging schemes with direct and cross hedge types. According to the simulation results, the 1:1 naijve and the minimum variance hedge strategies outperform no-hedge strategy. With respect to risk reduction, the minimum variance hedge is considered to be marginally superior to the 1:1 naijve hedge. More importantly, the hedging perfor- mances of direct hedge strategies prove to be even better than those of cross hedge strategies. The di®erences in the hedging performances between direct and cross hedges would be regarded as the e®ects of introducing Japanese yen currency futures con- tract.

Abstract

Despite of regional closeness and active trading between Korea and Japan, there is little empirical analysis on the foreign exchange risk of Korean won and Japanese yen. Recently, the Korea Exchange (KRX) has introduced a Japanese yen currency futures contract. The main objective of this study is to examine the hedging performance of this foreign exchange hedging tool. This study sets up a theoretical framework for capital investment hedging schemes with direct and cross hedge types. According to the simulation results, the 1:1 naive and the minimum variance hedge strategies outperform no-hedge strategy. With respect to risk reduction, the minimum variance hedge is considered to be marginally superior to the 1:1 naive hedge. More importantly, the hedging performances of direct hedge strategies prove to be even better than those of cross hedge strategies. The differences in the hedging performances between direct and cross hedges would be regarded as the effects of introducing Japanese yen currency futures contract.

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