Chicago and Mexico Futures Markets Asymmetries and Hedging Performance

Edgar Ortiz, Beatriz Valadez Bautista


This work investigates hedging performance of futures contracts in two asymmetric markets, peso/dollar traded at the Mexican derivatives market (MexDer); and dollar/peso traded in the Chicago Mercantile exchange (CME). We apply Value at Risk and Expected Shortfall enhanced by GARCH (1,1) modeling. The left and right tails of the futures return series are examined, for both a short and long positions. The period analyzed comprises October 2016 to June 2017, partitioned in three subperiods; results obtained for each market are compared, and finally their statistical validity is tested applying Kupiec backtesting. Overall, hedging in the CME is more effective, albeit the MexDer outperforms that market several times. However, all metrics (with and without GARCH modeling added) show important weakness below the 99 percent confidence level.

Palabras clave

Value at Risk, Expected Shortfall, GARCH, Peso futures hedging

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