Missing Data Bias on a Selective Hedging Strategy
Journal Title: Journal of Competitiveness - Year 2017, Vol 9, Issue 1
Abstract
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.
Authors and Affiliations
David Kiss Gabor, Marianna Savai, Beata Udvari
Keywords
Related Articles
- EP ID EP260859
- DOI 10.7441/joc.2017.01.01
- Views 122
- Downloads 0
Corporate Governance Against Recommendations: The Cases of the Strong Executive and the Strong Ownership
There are several basic configurations of corporate governance according to the separation of ownership and control (Jensen’s theory). Effective governance is described as a situation when an owner (or group of owners) k...
A Structure of Leadership Styles Based on the Toyatrity Model in the Chosen Hotel
In this article results of the evaluation of leadership styles, brand managers and assessing the potential of employees in a four-star hotel in Poland are presented. The research were based on the Toyota’s leadership mod...
The Growing Importance of the Practical Application of Corporate Social Responsibility in the Management of Companies in the Czech Republic
The paper is aimed at researching the issue of Corporate Social Responsibility (hereinafter “CSR”) in the Czech Republic (hereinafter “CR”). Social responsibility is now an integral part of integrated business management...
Organizational Citizenship Behaviour, Hospital Corporate Image and Performance
This study examines the relationship between organizational citizenship behaviour, hospital corporate image and performance. Questionnaires were distributed to 350 patients and 298 usable questionnaires were returned rep...
Does the EU Funding Increase Competitiveness of Firms by Supporting Organisational Changes?
Competitive firms with a good economic performance contribute to social development and quality of life. Countries and regions support competitiveness of firms through public policies and public funds. The research conce...