Portfolio returns usually demonstrate a heavy tail or skewness. If portfolio value at risk (VaR) is not considered to incorporate the distributions of third and fourth moments, bias results in the estimation of VaR. Considering to incorporate the distributions of the third and fourth moments, this study evaluates the Hang Seng stock index using the VaR of minimum variance hedging portfolio of future hedging and compares the performance of different models using back-testing. Empirical results indicate accuracy is improved when considering the
distributions of third and fourth moments compared to without considering the distributions of third and fourth moments. Additionally, models that incorporate the leveling effect are more accurate than those without. This study thus recommends that investors consider incorporating the distributions of third and fourth moments, while simultaneously including the effects of leveling on the dynamic volatility model when constructing hedging portfolio. Furthermore, investors can also use the study results as a reference for risk management.
Proceedings of the 2013 International Conference in Management Sciences and Decision Making=2013年管理科學與經營決策國際學術研討會論文集