Dynamic Hedging and Extreme Asset Co-movements

• 成果类型: Article
• 署名作者: Elkamhi, Redouane; Stefanova, Denitsa
• 署名单位: University of Toronto
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhu074
• 发表日期: 2015
• 页码: 743
• 关键词: portfolio; STOCK; models; allocation; dependence; parameter; selection; skewness; MARKETS; tests

摘要

The paper investigates the portfolio allocation effects of increased asset co-movements during market downturns. We develop a model for the stock price process that allows for increased and asymmetric dependence between extreme return realizations. We isolate the portfolio hedging demands that arise due to extreme co-movements and find a substantial shift of the portfolio holdings toward the risk-free asset. We demonstrate that accounting for dependence between extreme events in portfolio decisions leads to significant economic gains that stem primarily from intertemporal hedging motives. These findings are robust along alternative modeling assumptions of extreme co-movements and conditional correlation.