Foreshock volatility based metal hedging strategy

Abstract

The latest capital market crises are not the first and the last we will experience. These events of the previous decades led investors to diversify their portfolios with precious metals. As a result, the prices for raw materials, auxiliary materials, and operating materials have risen very strongly. As a result, companies are required to apply various hedging strategies to hedge production costs. This paper presents a hedging strategy based on volatility, which allows hedging against falling commodity prices. This paper deals with developing a new volatility-based hedging strategy for metals. The focus is on hedging against falling prices. The newly developed Foreshock-Vola-based strategy outperformed the 200-day MA strategy. It must be noted that this is the first study on the presented model due to the newly developed methodology. In this respect, it is recommended for further contributions that the investigation period be divided into individual years, and thus, the respective under - or outperformance of the vola-based hedging strategy compared to the 200-day MA be investigated separately.