Missing Data Bias on a Selective Hedging Strategy
Foreign exchange rates affect corporate profitability both on the macro and cash-flow level. The current study analyses the bias of missing data on a selective hedging strategy, where currency options are applied in case of Value at Risk (1%) signs. However, there can be special occasions when one o...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Tomas Bata University in Zlín
2017-03-01
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| Series: | Journal of Competitiveness |
| Subjects: | |
| Online Access: | http://www.cjournal.cz/files/238.pdf |
| _version_ | 1818389733118574592 |
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| author | Kiss Gábor Dávid Sávai Marianna Udvari Beáta |
| author_facet | Kiss Gábor Dávid Sávai Marianna Udvari Beáta |
| author_sort | Kiss Gábor Dávid |
| collection | DOAJ |
| description | Foreign exchange rates affect corporate profitability both on the macro and cash-flow level. The current study analyses the bias of missing data on a selective hedging strategy, where currency options are applied in case of Value at Risk (1%) signs. However, there can be special occasions when one or some data is missing due to lack of a trading activity. This paper focuses on the impact of different missing data handling methods on GARCH and Value at Risk model parameters, because of selective hedging and option pricing based on them. The main added value of the current paper is the comparison of the impact of different methods, such as listwise deletion, mean substitution, and maximum likelihood based Expectation Maximization, on risk
management because this subject has insufficient literature. The current study tested daily closing data of floating currencies from Kenya (KES), Ghana (GHS), South Africa (ZAR), Tanzania
(TZS), Uganda (UGX), Gambia (GMD), Madagascar (MGA) and Mozambique (MZN) in USD denomination against EUR/USD rate between March 8, 2000 and March 6, 2015 acquired from
the Bloomberg database. Our results suggested the biases of missingness on Value at Risk and volatility models, presenting significant differences among the number of extreme fluctuations
or model parameters. A selective hedging strategy can have different expenditures due to the choice of method. This paper suggests the usage of mean substitution or listwise deletion for
daily financial time series due to their tendency to have a close to zero first momentum |
| first_indexed | 2024-12-14T04:46:25Z |
| format | Article |
| id | doaj.art-cab36b82344945a090113549f0cb84c2 |
| institution | Directory Open Access Journal |
| issn | 1804-171X 1804-1728 |
| language | English |
| last_indexed | 2024-12-14T04:46:25Z |
| publishDate | 2017-03-01 |
| publisher | Tomas Bata University in Zlín |
| record_format | Article |
| series | Journal of Competitiveness |
| spelling | doaj.art-cab36b82344945a090113549f0cb84c22022-12-21T23:16:40ZengTomas Bata University in ZlínJournal of Competitiveness1804-171X1804-17282017-03-019151910.7441/joc.2017.01.01Missing Data Bias on a Selective Hedging StrategyKiss Gábor Dávid0Sávai Marianna1Udvari Beáta2University of Szeged, Faculty of Economics and Business AdministrationUniversity of Szeged, Faculty of Economics and Business AdministrationUniversity of Szeged, Faculty of Economics and Business AdministrationForeign exchange rates affect corporate profitability both on the macro and cash-flow level. The current study analyses the bias of missing data on a selective hedging strategy, where currency options are applied in case of Value at Risk (1%) signs. However, there can be special occasions when one or some data is missing due to lack of a trading activity. This paper focuses on the impact of different missing data handling methods on GARCH and Value at Risk model parameters, because of selective hedging and option pricing based on them. The main added value of the current paper is the comparison of the impact of different methods, such as listwise deletion, mean substitution, and maximum likelihood based Expectation Maximization, on risk management because this subject has insufficient literature. The current study tested daily closing data of floating currencies from Kenya (KES), Ghana (GHS), South Africa (ZAR), Tanzania (TZS), Uganda (UGX), Gambia (GMD), Madagascar (MGA) and Mozambique (MZN) in USD denomination against EUR/USD rate between March 8, 2000 and March 6, 2015 acquired from the Bloomberg database. Our results suggested the biases of missingness on Value at Risk and volatility models, presenting significant differences among the number of extreme fluctuations or model parameters. A selective hedging strategy can have different expenditures due to the choice of method. This paper suggests the usage of mean substitution or listwise deletion for daily financial time series due to their tendency to have a close to zero first momentumhttp://www.cjournal.cz/files/238.pdfmissing dataEM methodValue at RiskGARCHoptions |
| spellingShingle | Kiss Gábor Dávid Sávai Marianna Udvari Beáta Missing Data Bias on a Selective Hedging Strategy Journal of Competitiveness missing data EM method Value at Risk GARCH options |
| title | Missing Data Bias on a Selective Hedging Strategy |
| title_full | Missing Data Bias on a Selective Hedging Strategy |
| title_fullStr | Missing Data Bias on a Selective Hedging Strategy |
| title_full_unstemmed | Missing Data Bias on a Selective Hedging Strategy |
| title_short | Missing Data Bias on a Selective Hedging Strategy |
| title_sort | missing data bias on a selective hedging strategy |
| topic | missing data EM method Value at Risk GARCH options |
| url | http://www.cjournal.cz/files/238.pdf |
| work_keys_str_mv | AT kissgabordavid missingdatabiasonaselectivehedgingstrategy AT savaimarianna missingdatabiasonaselectivehedgingstrategy AT udvaribeata missingdatabiasonaselectivehedgingstrategy |